In Re: Carole Richards

Background

Carole Richards filed for Chapter 13 bankruptcy on August 28, 2017. U.S. Bank National Association, acting as trustee for CSAB Mortgage-Backed Pass-Through Certificates, Series 2006-1, filed a proof of secured claim for $1,827,403.81 based on a mortgage on Richards’s real property on East 128th Street in Manhattan. U.S. Bank submitted a copy of the mortgage note in support of the claim.

After unsuccessfully challenging the proof of claim, Richards brought an adversary proceeding against U.S. Bank and other defendants. She challenged the validity of the note, asserting that several financial institutions had provided her with copies containing different endorsements.

Bankruptcy Court Proceedings

After discovery ended, U.S. Bank and Wells Fargo moved for summary judgment, which is a request for judgment without a trial because the material facts are not genuinely disputed. They submitted a declaration from Wells Fargo Vice President of Loan Documentation Richard L. Penno. The declaration stated that U.S. Bank had continuously possessed the original note since at least February 15, 2006.

Richards opposed summary judgment on jurisdictional grounds and moved to expunge, or exclude from the record, the Penno Declaration. She argued principally that Penno was an expert witness whose identity and report should have been disclosed earlier. She also argued that five exhibits attached to the declaration had not been disclosed before the November 7, 2019 discovery deadline and should not be considered.

On March 26, 2020, the Bankruptcy Court denied the motion to expunge and ruled that Penno was not testifying as an expert, so earlier disclosure was not required. The Bankruptcy Court also granted summary judgment, concluding that U.S. Bank had shown that it retained possession of the original note at all relevant times.

Richards then moved to reargue both rulings. At a May 14 hearing, the Bankruptcy Court stated that it had considered and rejected Richards’s argument about the exhibits’ disclosure. It concluded that Richards had not met the standard under Rule 60(b), which permits limited relief from a judgment or order, and denied the motions. The Bankruptcy Court formally entered that denial on May 19, 2020.

District Court Appeal

Richards appealed the denial of her motions to reargue. The District Court explained that an appeal from denial of a Rule 60(b) motion generally reviews only whether reconsideration was properly denied, not the merits of the underlying judgment. The applicable standard was abuse of discretion, meaning that the Bankruptcy Court’s decision would be overturned only if it rested on legal or clearly erroneous factual findings, or fell outside the range of permissible decisions.

The District Court noted that Richards was not challenging the Bankruptcy Court’s ruling that Penno was not an expert or that the declaration could be considered. Instead, she argued that the Bankruptcy Court had failed to address specifically whether the five exhibits were produced too late for use on summary judgment.

Holding and Disposition

The District Court held that Richards had not shown an abuse of discretion. It found that the Bankruptcy Court was aware of the late-disclosure argument and had rejected it when denying the objection to the Penno Declaration. The District Court also held that the Bankruptcy Court reasonably concluded that any challenge to the summary-judgment and evidence rulings should have been brought by appealing those rulings, rather than through a motion to reargue.

The District Court further explained that late production of documents does not automatically require a court to strike them from the record, and that a bankruptcy court has broad discretion in deciding whether to impose sanctions. The Bankruptcy Court’s May 19, 2020 denial of Richards’s motions to reargue was affirmed. The Clerk was directed to enter judgment for the appellees and remand the case for further proceedings consistent with the judgment.