On August 14, 2006, the Ninth Circuit Court of Appeals, Bankruptcy Appellate Panel, held in United Student Funds, Inc. v. Wylie (In re Wylie), 2006 Bankr. Lexis 2088 (9th Cir. BAP 2006), that a claimant filing a motion to reconsider an order sustaining a claim objection, after the 10-day period for appeal, was not entitled to revisit the merits of its claim. Instead, the claimant was limited to the narrow grounds enumerated in FRCP 60(b), which generally require a showing that events subsequent to the entry of the judgment make its enforcement unfair or inappropriate, or that the party was deprived of a fair opportunity to appear and be heard in connection with the underlying dispute.

On May 20, 2005, claimant United Student Funds, Inc. ("USF") had filed a proof of claim in the amount of $8,617.66, based on a student loan that debtor Heather Wylie received while attending college (the "Claim"). The Debtors objected to the Claim, contending that the amount due was $860.48 rather than $8,617.66 (the "Objection"). Despite admitting that it had received the Objection, USF failed to file a written response or request a hearing within the required period. Even though USF failed to respond to the Objection, the bankruptcy court set a hearing on the Objection, and caused to be served on Debtors and USF a notice of the hearing. USF failed to appear at the hearing, and the bankruptcy court entered an order sustaining the Objection. More than 10 days after the entry of the order, USF filed a motion for reconsideration of the order sustaining the Objection, which argued the merits of the Claim. The bankruptcy court denied the motion for reconsideration without reaching the merits of the Claim.

In affirming the bankruptcy court, the BAP noted that USF had failed to respond to the Objection in a timely fashion and failed to establish an excuse for this failure. Further, because the Debtors admitted that the Claim is nondischargeable, an adversary proceeding was not required to challenge the amount of the Claim.

Authored by:

Jenny Park Garner

(415) 774-2949

jpark@sheppardmullin.com