Ten Day Rule Protects Trustee

Most bankruptcy lawyers find the arcane details of the Federal Rules of Civil Procedure to be deadly dull. However, for Austin Bankruptcy Trustee Dan Roberts, the difference between Fed.R.Civ.P. 59 and 60 proved to be very important. In re Geneva Peterson Berg, No. 06-11933 (Bankr. W.D. Tex. 2/7/08)(Judge Frank R. Monroe).

In the Berg case, the estate included a mineral interest which appeared to have little value. The Debtor valued it as $6,987 in her schedules, but was only willing to offer $3,000 to purchase it. When the Trustee contacted the operator, he found out that there was a well upon the mineral interest and that it was expected to produce $5,260 per year. Based on this information, the Trustee negotiated a sale to the operator for $25,000. After the Debtor offered more and an auction ensued, the court approved a sale for $34,000 and the sale closed. At this point, the Trustee should have felt very good, having increased the original offer by ten-fold.

Three days after the sale closed, the Trustee received a check for $10,190.80 representing one month’s production. It turns out that the operator had failed to mention that two new wells had been drilled on the lease as a result of a farm-out the previous year. The operator apparently gave the trustee accurate information about the existing well, but apparently took an attitude of “don’t ask, don’t tell” about any other wells which might be drilled. Based upon the new production, the value of the mineral interest was estimated at $180,000 to $300,000.

The Trustee was not amused and filed a prompt motion to reconsider the order approving the sale. The motion was filed less than ten days after entry of the initial order, which proved to be important.

The Bankruptcy Court noted that a motion filed within ten days was governed by Fed.R.Civ.P. 59, as incorporated by Fed.R.Bankr.P. 9023. Rule 59 allows relief from a judgment “for any reason for which a new trial has heretofore been granted in a suit in equity.” On the other hand, Fed.R.Civ.P. 60(b) allows relief up to one year from entry of an order, but is limited to the specific grounds listed within the rule (such as mistake inadvertence, surprise, excusable neglect, fraud and newly discovered evidence). Judge Monroe pointed out that while a motion was Rule 59 was subject to “much more stringent time limitations than a comparable motion under Rule 60(b),” it was not subject to “the same exacting substantive requirements.”

In practice, the standards under Rules 59 and 60 may be very similar. In fact, in the Berg case, Judge Monroe analyzed the motion to reconsider based on newly discovered evidence, which is a specified ground under Rule 60(b)(2). However, in this case, the tipping point may have been the interest in protecting the finality of bankruptcy sales. Where the motion to reconsider was filed within ten days of entry of the order, it was unlikely that the purchaser would have significantly relied upon the order. On the other hand, had the motion been filed six months or a year later, the prejudice to the buyer could have been significant. Thus, while motions under Rules 59 and 60(b) may consider the same or similar grounds, the court is much more likely to grant an equitable do-over under Rule 59 than Rule 60.