Blanding v. Mendez

1 The Court has subject matter jurisdiction of this matter
pursuant to 28 U.S.C. § 1334 and Administrative Order Misc. No.
84-0324 (D. N.M. March 19, 1992). 	The Court has personal
jurisdiction over the parties. 	This is a core proceeding under
28 U.S.C. § 157(b)(2)(I). 	This order contains findings of fact
(continued...)
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
ROBERT R. V. MENDEZ and
BERNADETTE E. MENDEZ,
Debtors. 	No. 7-10-12748 SA
CHARLOTTE DIANE BLANDING,
Plaintiff,
v. 	Adv. No. 10-1121 S
Robert R. V. Mendez,
aka Robert Reynaldo Mendez,
aka Robert Valentine Mendez,
fdba Family Estates Management, LLC,
fdba House Buyers, LLC,
fdba Equity Holdings, LLC,
Defendant.
MEMORANDUM OPINION AND ORDER DENYING
MOTION TO SET ASIDE DEFAULT JUDGMENT (DOC 13)
Defendant Robert Mendez’ (Debtor) Motion to Set Aside
Default Judgment (Motion) (doc 13) came before the Court for a
hearing on the merits on February 3, 2011. 	Debtor represented
himself and appeared in person together with his daughter Jessica
Brandenburg to take notes; Plaintiff Charlotte Blanding appeared
in person with her counsel Scott Turner. 	The Court heard the
testimony of both Plaintiff and Debtor, considered the evidence
at the close of Debtor’s case, made findings of fact and
conclusions of law orally on the record, and will deny the
Motion. 1
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1(...continued)
and conclusions of law that are intended to duplicate and as
applicable supplement the findings and conclusions announced
orally on the record as permitted by Rule 7052, F.R.B.P.
Page 2 of 	14
Background
The CM file and the exhibits admitted into evidence at the
final hearing show that Plaintiff obtained a judgment in the
Second Judicial District Court, Bernalillo County, State of New
Mexico, against Debtor for over $500,000. 	The liability portion
of the judgment was based on Debtor’s failure to comply with
discovery demands, and resulted in a default judgment against
him. 	It was because of this judgment that Debtor and his spouse
filed for bankruptcy protection.
The judgment arose from two real estate contracts that
Plaintiff and Debtor entered into, and the surrounding
negotiations and representations. 	The first real estate contract
was for a residence on Full Moon Avenue, in Albuquerque, New
Mexico. 	The second, entered into years later when Plaintiff
sought to move into a larger home, was for a residence on
Brookline Avenue, Albuquerque, New Mexico.
The complaint in this adversary proceeding seeking to make
the default judgment nondischargeable based on §523(a)(2)(A) and
§523(a)(6) was filed timely on August 4, 2010 (doc 1), and the
summons issued on August 5, 2010 (doc 2), requiring an answer by
Tuesday, September 7 (taking into account that 30 days after the
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summons was issued was Saturday, September 4, and Monday,
September 6, was Labor Day). 	No answer or other response was
filed by September 7. 	The summons scheduled the initial pretrial
conference for Monday, September 20, 2010, at 9.00 am. 	Neither
Debtor nor anyone on his behalf attended that pretrial
conference. 	On September 23, the Clerk entered the Certificate
of Default (doc 7), and on September 29, at 10.59 am, the Court
entered the default judgment. 	(Doc 8). 	On that same day, at
2.27 pm, Debtor filed his answer. 	(Doc 9). 	Also that same day,
Plaintiff’s counsel filed a certificate saying that he had served
a copy of the judgment on Debtor that day. 	(Doc 10). 	On October
8, Debtor filed the Motion.
The Court conducted an almost day-long trial, which was
comprised solely of Debtor’s presentation of his case-in-chief.
Debtor first called Plaintiff as an adverse witness, and then
himself. 	Plaintiff’s counsel did not cross examine either
witness. 	At the conclusion of Debtor’s case, the Court made oral
findings of fact and conclusions of law and denied the Motion.
Analysis
Fed.R.Civ.P. 55(c) states “Setting Aside a Default or a
Default Judgment. 	The court may set aside an entry of default
for good cause, and it may set aside a default judgment under
Rule 60(b).” 	Fed.R.Civ.P. 60(b) states:
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(b) Grounds for Relief from a Final Judgment, Order, or
Proceeding. 	On motion and just terms, the court may
relieve a party or its legal representative from a
final judgment, order, or proceeding for the following
reasons:
(1) mistake, inadvertence, surprise, or excusable
neglect;
(2) newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or
extrinsic), misrepresentation, or misconduct by an
opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or
discharged; it is based on an earlier judgment that has
been reversed or vacated; or applying it prospectively
is no longer equitable; or
(6) any other reason that justifies relief.
The Tenth Circuit has stated that Rule 60(b) should be liberally
construed when substantial justice will be served. 	Jennings v.
Rivers, 394 F.3d 850, 856 (10 th Cir. 2005).
Rule 60(b)(1) provides that “[o]n motion and upon such
terms as are just, the court may relieve a party or a
party's legal representative from a final judgment ....
for the following reasons: (1) mistake, inadvertence,
surprise, or excusable neglect....” It “is an
extraordinary procedure” which “ ‘seeks to strike a
delicate balance between two countervailing impulses:
the desire to preserve the finality of judgments and
the incessant command of the court's conscience that
justice be done in light of all the facts.’ ” 	Cessna
Fin. Corp.[v. Bielenberg Masonry Contracting, Inc.],
715 F.2d [1442] at 1444 [10 th Cir. 1983)](quoting Seven
Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th
Cir.1981) (additional internal quotation marks
omitted)).
Id.
The Tenth Circuit set out some rules for dealing with Rule
60(b) motions:
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Under Rule 60(b), which standards Rule 55(c) invokes
when a party is seeking relief from a default judgment,
a court may set aside a final judgment “[o]n motion and
upon such terms as are just.” 	Fed.R.Civ.P. 60(b). 	The
several reasons listed in the Rule include setting
aside for: “mistake, inadvertence, surprise, or
excusable neglect,” id. at (b)(1), or for: “fraud
(whether heretofore denominated intrinsic or
extrinsic), misrepresentation, or other misconduct of
an adverse party.” 	Id. at (b)(3). 	It is also
established that a movant must have a meritorious
defense as well as a good reason to set aside the
default. 	Greenwood Explorations, Ltd. [v. Merit Gas
and Oil Corp., Inc.], 837 F.2d [423] at 427 [(10 th Cir.
1988)]; 	Cessna Fin. Corp. v. Bielenberg Masonry
Contracting, Inc., 715 F.2d 1442, 1445 (10th Cir.
1983); [Olson v. Stone (] In re Stone [)], 588 F.2d
1316, 1319 (10th Cir. 1978).
United States v. Timbers Preserve, Routt County, Colorado, 999
F.2d 452, 454 (10 th Cir. 1993)(Footnote omitted).
Courts have established three requirements which must
be met when setting aside a default judgment under Rule
60(b): (1) the moving party's culpable conduct did not
cause the default; (2) the moving party has a
meritorious defense; and (3) the non-moving party will
not be prejudiced by setting aside the judgment. 	See
Meadows [v. Dominican Republic], 817 F.2d [517] at 521
[(9 th Cir. 1987)]; INVST Fin. Group, Inc. v.
Chem-Nuclear Systems, Inc., 815 F.2d 391, 398 (6th
Cir.), cert. denied, 484 U.S. 927, 108 S.Ct. 291, 98
L.Ed.2d 251 (1987); 6 [James W.] Moore, [Moore's
Federal Practice] supra, ¶ 55.10[1] [(2d ed. 1992)].
The Second Circuit considers the first factor in terms
of whether the default was willful. 	Wagstaff-El v.
Carlton Press Co., 913 F.2d 56, 57 (2d Cir. 1990),
cert. denied, 499 U.S. 929, 111 S.Ct. 1332, 113 L.Ed.2d
263 (1991); Davis [v. Musler], 713 F.2d [907] at 915
[(2 nd Cir. 1983)]. 	Generally a party's conduct will be
considered culpable only if the party defaulted
willfully or has no excuse for the default. 	6 Moore,
supra, ¶ 55.10[1]; see also Meadows, 817 F.2d at 521
(receiving actual notice and failing to respond is
culpable conduct).
Id.
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The determination of whether neglect is excusable “is
at bottom an equitable one, taking account of all
relevant circumstances surrounding the party's
omission.” 	Pioneer Inv. Servs. Co.[ v. Brunswick
Assoc. Ltd. P’ship], 507 U.S. [380] at 395, 113 S.Ct.
1489 [(1993)] (discussing application of the excusable
neglect standard of Fed. R. Bankr.P. 9006(b)(1)).
Relevant factors include “the danger of prejudice to
the [opposing party], the length of the delay and its
potential impact on judicial proceedings, the reason
for the delay, including whether it was within the
reasonable control of the movant, and whether the
movant acted in good faith.” 	Id. 	“‘[F]ault in the
delay remains a very important factor-perhaps the most
important single factor-in determining whether neglect
is excusable.’” 	United States v. Torres, 372 F.3d
1159, 1163 (10th Cir. 2004) (quoting City of Chanute v.
Williams Natural Gas Co., 31 F.3d 1041, 1046 (10th Cir.
1994)).
Jennings, 394 F.3d at 856-57. 	Finally, the Tenth Circuit has
ruled that default judgments are “a harsh sanction” and that
there is a strong policy favoring resolution of disputes on their
merits. 	Ruplinger v. Rains (In re Rains), 946 F.2d 731, 732
(10 th Cir. 1991). 	Because it is such a harsh sanction, due
process requires that the default be the result of willfulness,
bad faith, or fault. 	Id. at 733. 	Default judgments deprive a
litigant his or her day in court and are appropriate only where a
lesser sanction would not serve the interest of justice. 	Id.
(Citation omitted.)
Under Timbers Preserve, Routt County, 999 F.2d at 454,
Debtor must establish three conditions to set aside the default
judgment: (1) his culpable conduct did not cause the default; (2)
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he has a meritorious defense; and (3) Plaintiff will not be
prejudiced by setting aside the judgment.
Prejudice
At the outset of the hearing, the Court found, based on the
papers filed by Plaintiff, that there was no cognizable prejudice
to Plaintiff were the Court to set aside the default judgment.
That was because the only prejudice that Plaintiff cited was the
cost, in dollars and emotional demands, of having pursued relief
against Debtor this far and of having to complete the process by
a trial on the merits. 	Depriving Plaintiff of the “windfall” of
not having to complete the trial process, see Sun v. Board of
Trustees of the University of Illinois, 473 F.3d 799, 811-12 (7 th
Cir.), cert. denied, 551 U.S. 1114 (2007), does not constitute
the sort of prejudice that would preclude setting aside the
default judgment. 	On the other hand, the Court finds that Debtor
has not provided a sufficient excuse for not having responded to
the complaint in a timely fashion or for not having attended the
initial pretrial conference, and that Debtor has not established
a defense on the merits. 	Thus, despite the strong preference for
a resolution on the merits, this is one of the perhaps few cases
where that preference must be disregarded.
Mistake, Inadvertence, Surprise, or Excusable Neglect
Debtor recited in his testimony and the Motion that when he
first met with his bankruptcy counsel (Counsel), he told Counsel
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that there would definitely be a dischargeability complaint filed
by Plaintiff, and that Counsel said he would represent him in
that matter. 	Debtor did not describe what financial arrangements
if any were discussed; given that Debtor’s previous non-
bankruptcy representations were severely hampered by lack of
funds, the question arises whether Debtor had a legitimate
expectation that Counsel would undertake this potentially
complicated representation when Debtor would be unable to pay.
Debtor stated that Counsel sent him by e-mail scanned copies
of the complaint and summons about two weeks before the answer
was due. 	Debtor did not testify that he did not receive the
documents directly shortly after they were served. 	(Debtor has
not alleged a lack of service, or of timely service, of the
complaint and summons on him directly.)
In the meantime, on August 24, two weeks before the answer
was due, (bankruptcy) Counsel had e-mailed Debtor and his spouse
that Counsel had been seriously ill and would not be able to
represent Debtor in the adversary proceeding. 	This was Debtor’s
testimony, and is verified by a copy of the e-mail attached to
the Motion.
Thus, Debtor knew two weeks before the due date of the
answer and almost exactly four weeks before the initial pretrial
conference on September 20 that he would not have the services of
Counsel (assuming he would otherwise have had them). 	Yet he did
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not seek an extension of time to file a response, or obtain other
counsel, within the two-week period before the deadline for
answering the complaint, or within the almost four-week period
before the initial pretrial conference, nor within the one-week
period following the initial pretrial conference. 	This, despite
the fact that, as Debtor testified during the hearing, Mr.
Turner, as counsel for Plaintiff or another party, had obtained a
total of three default judgments against him before this one, and
despite the fact that Debtor and his spouse had previously
experienced considerable difficulty finding competent counsel to
represent them in the prebankruptcy litigation with Mr. Turner’s
clients due to a lack of funds.
Debtor also testified, and put in the Motion, that he
suffered from ADD (attention deficit disorder) and ADHD
(attention deficit hyperactivity disorder) such that he is prone
to procrastination, and deals very poorly with paperwork and
deadlines. 	That may well be, and of course ADD and ADHD are
serious conditions, the consequences of which are not to be
minimized. 	Nevertheless Debtor by now should be prepared to deal
with that affliction when Debtor has found himself repeatedly
immersed in litigation arising from a series of complicated real
estate transactions of Debtor’s own engineering.
In a related vein, Debtor testified that all the paperwork
in the family, including the records of the real estate
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transactions, was handled by his spouse and co-debtor Bernadette
Mendez. 	Unfortunately she suffered a major stroke about one and
half years ago. 	Thus she was available to work on the various
state court litigations in which she and Debtor were embroiled
(thus raising the question about whether those defaults in fact
did not arise from the underlying fact that Debtor had no real
defenses to the claims in those litigations), but was not
available when this adversary proceeding was filed. 	Again,
without in any way minimizing the massive toll that such an event
takes not just on the victim of the stroke but also on the
victim’s family, the fact is that Debtor had a year after that
terrible event to adjust and prepare for the litigation that he
foresaw. 	Apparently he did not do so.
Finally, Debtor testified that he obtained some advice from
an attorney about how to answer a complaint, and that resulted in
the answer that was filed, and that subsequently he went on the
internet to find out how to prepare the motion to set aside the
default judgment which he filed. 	Given all his litigation
experience in state court, and how evidently intelligent Debtor
is, it is hard to imagine that he needed much instruction in how
to file an answer to a complaint. 	Similarly his ability to put
together the Motion as competently as he did belies any notion
that he was incapable of representing his own interests
adequately in writing. 	Overall Debtor’s conduct is an
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illustration of “culpable” conduct that is not excusable. 	See
Meadows, 817 F.2d at 521 (receiving actual notice and failing to
respond is culpable conduct).
Lack of a Meritorious Defense
The standard for judging whether a party has a meritorious
defense is whether the defense stated would, if proved,
constitute a defense to the claim asserted in the adversary
complaint. 	See, e.g., Indigo America, Inc. v. Big Impressions,
LLC, 597 F.3d 1, 4 (1 st Cir. 2010)(“The party’s averments need
only plausibly suggest the existence of facts which, if proven at
trial, would constitute a cognizable defense.”)(Citation
omitted.) 	See also 10A Wright, Miller & Kane, Fed. Prac. & Proc.
Civ. § 2697 (3d ed.) (“The underlying concern is to determine
whether there is some possibility that the outcome of the suit
after a full trial will be contrary to the result achieved by the
default.”)(Footnote omitted.)
In this instance, Debtor’s answer to the complaint admitted
or denied, and sometimes commented on, all the allegations of the
adversary proceeding complaint, doc 10, and that answer denied
liability clearly. 	However, in this adversary proceeding there
was much more information available to aid the Court in deciding
whether Debtor had a meritorious defense. 	And that information
was presented to the Court upon the consent of both parties and
the Court.
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2 In the state court action upon which this adversary
proceeding is based, Debtor participated fully, albeit
negatively, by not cooperating with discovery. 	Debtor explained
at some length that the lack of cooperation arose from a
combination of incompetent counsel, a judge who refused to listen
to or understand arguments that distinguished among the various
defendants for which he was responsible for responding to
discovery, and his own inability to timely organize discovery
responses. 	The Court finds that Debtor’s explanations are not
credible, and that a vigorous effort to comply with the discovery
(continued...)
Page 12 of 	14
To begin with, this is not a matter in which Debtor has
never had his day in court. 	The trial exhibits, virtually all of
which were offered independently by both sides, set out the
lengthy proceedings that took place in the state court. 	The
final judgment from the state court sets out both the basis for
the default judgment against Debtor (based on the failure to
cooperate in discovery) and the award of compensatory and
punitive damages. 	Plaintiff exhibit 2 to exhibit C and Debtor
exhibit C to exhibit 2.
In addition, the Court had before it the testimony of both
Plaintiff and Debtor about the merits of the complaint against
Debtor, and much of the documentation that reflected the
arrangements between the two of them including copies of the real
estate contracts. 	The testimony and the documents were
consistent with, and provided an independent basis for agreeing
with the result of, the state court judgment rendered against
Debtor for defrauding and for wilfully and maliciously damaging
Plaintiff. 2 	As only one example, the Full Moon real estate
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2(...continued)
demands would have avoided the sanction of the default judgment,
though it may well have led to a judgment against him on the
merits in any event.
3 A question raised by these proceedings but which the Court
need not answer is whether, in deciding the meritorious defense
issue, the Court could consider whether a New Mexico state court
judgment, awarded on the basis of misconduct (e.g., failure to
cooperate in discovery), would provide the factual basis for the
application of collateral estoppel or issue preclusion, as
permitted (in the appropriate circumstances) by Grogan v. Garner,
498 U.S. 279, 284 n.11 (1991). 	In this adversary proceeding,
that would entail considering under what circumstances a state-
court default judgment might be entitled to collateral estoppel
effect. 	So far, the answer to that question has been in the
negative. 	Blea v. Sandoval, 107 N.M. 554, 558, 761 P.2d 432, 436
(Ct. App.), cert. denied, 107 N.M. 413, 759 P.2d 200 (1988) (“In
New Mexico, we recognize that default judgments do not have
collateral estoppel effect in future litigation, although they
may have res judicata effect.”). 	Compare, for example, Harris v.
Appleberry (In re Appleberry), Adv. No. 06-1090 (Memorandum
Opinion and Order, Bankr. D. N.M., Sept. 1, 2006) (Bankruptcy
court declined to apply collateral estoppel when debtor had
default judgment assessed against him in state court for failure
to cooperate with discovery) with McCart v. Jordana (In re
Jordana), 232 B.R. 469 (10 th Cir. BAP 1999), aff’d 216 F.3d 1087,
2000 WL 783401 (10 th Cir.)(unpublished)(failure of
(continued...)
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contract and related due-on-sale “disclosures” had provisions
that made it a default on Plaintiff’s part to disclose to the
underlying mortgage holder Bank of America that Plaintiff was
purchasing the property, to record the real estate contract, or
to even acknowledge that Plaintiff was residing in the Full Moon
property should a Bank of America representative appear and ask
questions. 	Thus the Court had the opportunity to examine fully
whether Debtor had available a meritorious defense, and concludes
that he did not. 3
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3(...continued)
defendant/debtor to respond to discovery in federal securities
fraud action and absconding with originals of transcripts leading
to sanction of default judgment permitted application of
collateral estoppel in subsequent nondischargeability action).
The Court has not found any New Mexico case after Blea v.
Sandoval which discusses the application or not of collateral
estoppel in the face of this sort of default. 	Were the issue to
arise again, a certification to the New Mexico Supreme Court by
the United States District Court might be appropriate.
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Conclusion and Order
The foregoing makes clear that Debtor was not only culpable
in not timely responding to the complaint in this adversary
proceeding and in failing to appear for the initial pretrial
conference, but also that Debtor does not have a defense on the
merits.
IT IS THEREFORE ORDERED that Debtor’s Motion to Set Aside
Default Judgment (doc 13) is denied.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	February 11, 2011
Copies to:
Scott E Turner
The Turner Law Firm, LLC
500 Marquette Ave., N.W. Suite 1480
Albuquerque, NM 87102-5325
Robert R. V. Mendez
5632 Drake Ave. NW
Albuquerque, NM 87114
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