Vacating A Court Order That Violates A Mediated Settlement Agreement—For “Mistake” (In re Mattox)

Disputed property line is on the west side of this photo

By Donald L. Swanson

The opinion is In re Mattox, Case No. 18-10101-13 in the Kansas Bankruptcy Court, decided October 19, 2020 (Doc. 93).

Homestead Exemption Dispute

Here’s what happened.

Debtor files Chapter 7 bankruptcy, claiming a homestead exemption in 43 acres of property, having a scheduled value of $244,970.  Kansas Statutes Annotated § 60-2301 provides for a homestead exemption “to the extent of 160 acres of farming land, or of one acre within the limits of an incorporated town or city.”

The Chapter 7 Trustee objects to the homestead exemption (Doc. 25) on these grounds:

  • “All of such property does not appear to be ‘farming land’”; and
  • “A portion of such property is, in fact, devoted to an independent business, namely a rodeo arena operated as a commercial business.”

Mediation, Settlement, & Court Approval

After a hearing on the matter, the Court concludes that the dispute “is well suited to mediation” and refers it to mediation under Local Bankruptcy Rule 9019.2 (Doc. 51).

The mediation session occurs, a settlement agreement is reached, and the Trustee files a “Notice of Intended Settlement with Objection Deadline” (Doc. 58).  The settlement terms include the following (id.):

  • Debtor “waives his claim of exemption as a strip of land along the full west side of his real estate as shown on the attached aerial map” [Note: a photo of this “aerial map” is above.]
  • “The ‘waiver property’ is approximately 8 or 9 acres . . . with the east side . . . being the tree line as shown” [see the vertical line along the short tree line that’s toward the west side on the photo above].
  • The “waiver property” area is to be surveyed and then “subject to sale by the Trustee.”
  • “This Settlement Agreement is subject to approval” of the Bankruptcy Court.

The settlement agreement is approved by the Bankruptcy Court (Doc. 60).

A Survey

Then, the Trustee employs a surveyor, with Court approval (Doc. 62 & 67). 

When the surveyor completes his work, the Trustee files a “Motion for Supplemental Order on Objection to Claim of Exemption” (Doc. 65), which attaches the survey with a plat showing that the surveyed property consists of “10.10 acres.” 

No objection is filed, so the Bankruptcy Court grants the Supplemental Motion (Doc. 69).  Then the Trustee asks the Court for authority to employ an auctioneer to sell the “waiver property,” and the Court grants that authority (Doc. 71 & 75).

Things Fall Apart

Meanwhile, Debtor sees the surveyor’s stakes in the ground and realizes that the survey, (i) is of “10.10 acres” (not 8 or 9 acres), and (ii) extends east of the line drawn on the aerial photo along the short tree line.

So, Debtor files his “Motion to Set Aside Order Granting Motion for Supplemental Order” (Doc 77) alleging:

  • The survey description is not accurate, and the surveyed tract is not what the parties agreed upon — yet, Trustee intends to sell the surveyed tract of 10.10 acres;
  • Everyone now knows that Sedgwick County regulations prohibit new tracts of less than 10 acres, but no one knew of this regulation at the mediation;
  • To comply with this regulation, the appraiser surveys a larger tract than the parties had agreed upon; and
  • Debtor requests relief from the Order under Fed.R.Bkr.P. 9024 (which incorporates Fed.R.Civ.P. 60), for “mistake.”

Bankruptcy Court Order

In response, the Bankruptcy Court issued its “Order Granting Debtor’s Motion to Vacate” (Doc. 93).  The uncontested Supplemental Order is set aside and no longer of any effect. But the original Court approving the mediated settlement agreement remains in full force and effect. 

Bankruptcy Court Rationale

Here is the Court’s rationale for vacating the Supplemental Order.

–Fed.R.Civ.P. 60(b)(1).

Fed.R.Civ.P. 60 is incorporated into bankruptcy by Fed.R.Bankr.P. 9024.  Rule 60(b)(1) & 60(c)(1) say:

“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 . . .”; and

“A motion under Rule 60(b) must be made within a reasonable time—and . . . no more than a year after the entry of the judgment or order or the date of the proceeding.”

–Time Provisions of Rule 60

Here’s how the Bankruptcy Court applies the time-for-filing provisions of Rule 60(b)(1) & (c)(2) to In re Mattox:

  • Debtor filed his motion to vacate five months after entry of the Supplemental Order, so the only question is whether five months is reasonable here;
  • Debtor recognized the error of the Trustee’s survey once he saw stakes in the ground, but acknowledged that he had no idea how long the stakes had been there;
  • Debtor contacted counsel as soon as he saw the stakes indicating the incorrect boundary line—this happened around the time Covid restrictions began, so Debtor’s counsel did not travel to Debtor’s land to see the surveyor’s stakes until it was safe to do so; and
  • Accordingly, the five-month lapse between entry of the Supplemental Order and filing the motion to vacate was reasonable.

–“Mistake” Provisions of Rule 60

Here are legal standards for applying the “mistake, inadvertence, surprise, or excusable neglect” provisions of Rule 60(b)(1).

  • Rule 60(b) “is an extraordinary procedure” to be utilized only “upon a showing of good cause,” and the burden of proof is on the moving party;
  • Rule 60(b)(1) “mistake” provisions can apply “when the party has made an excusable litigation mistake” — not, (i) a deliberate decision, (ii) a failure to understand or to predict legal consequences, (iii) a negotiation mistake, or (iv) a litigant’s carelessness;
  • An excusable litigation mistake is when the party, (i) could not have protected against the mistake, and (ii) is not at fault; and
  • Rule 60(b) should be liberally construed to serve substantial justice.

This is how the Bankruptcy Court applies Rule 60(b)(1) standards to In re Mattox:

  • The Trustee admits, and Debtor agrees, that the east boundary of the legal description is incorrect in the survey. 
  • In the settlement, the parties explicitly agreed that the east boundary would be along the short tree line as shown on the aerial view [see vertical line drawn along the short tree line and toward the left side of the photo above].
  • The survey’s purpose was to create the legal description for what was agreed upon—not for a larger area.            

Accordingly the Court orders that the Supplemental Order set aside under Rule 60(b)(1). 

–Continuing Under Mediated & Approved Agreement

Additionally, the Court requires the parties to continue under their previously-approved and mediated settlement agreement, which requires the following:

  • A survey to create a legal description for the “waiver property,” defined as (i) “bounded by the west, north and south sides of the debtor’s ownership,” and (ii) “with the east side of the ‘waiver property’ being the tree line as shown” in the aerial photo above; and
  • Once this legal description is established, the property “will be subject to sale by the Trustee.”

Editorial Note

The parties, in negotiations, were ignorant of County regulations requiring a plat of at least 10 acres for subsequent sale. 

Therefore, the practical question before the Court became this: who should bear the burden of that ignorance?

The surveyor attempted to place the burden of that ignorance upon Debtor, by creating a survey of 10.10 acres. 

The Court, however, determined that the settlement agreement terms establish that is the Trustee, not Debtor, who bears the burden of ignorance: the designated area—and only that area—is to be set aside for sale by the Trustee.  Perhaps the Trustee will be unable to sell it—but that is the Trustee’s burden under the terms of the mediated settlement agreement.

Conclusion

A mediated and court-approved settlement agreement will be enforced according to its terms.

A subsequent order in violation of that agreement can be set aside under Fed.R.Civ.P. 60(b)(1) (and Fed.R.Bankr.P. 9024), for “mistake, inadvertence, surprise, or excusable neglect.” 

Those are the lesson of In re Mattox.

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