Appeal from the United States District Court for the Northern District of Indiana, Fort Wayne Division. No. 81 B 00006 -- Jesse E. Eschbach, Judge.
Bauer, Cudahy, and Coffey, Circuit Judges.
This is an appeal from a final judgment of the district court dismissing as untimely the debtor's appeal from an order and judgment of the bankruptcy court. The issues presented for review are whether the notice of appeal to the district court was untimely, and whether the bankruptcy court lacked subject matter jurisdiction of the case at the time of entry of the default judgment.
The nature of the issues presented for review requires a detailed statement of the procedural history of the case.
On February 14, 1980, creditors-appellees filed a joint petition for involuntary relief against Leo and Jane Busick pursuant to Chapter 7 of the Bankruptcy Code. Summons was issued on February 20, 1980, requiring an answer to be filed on or before March 11, 1980. No answer was filed on or before that date. On March 12, 1980, the bankruptcy court entered an order for relief by default. On March 13, 1980, the court received answers from appellant, Jane Busick, and her husband Leo. The answers were returned unfiled on March 14, 1980.
On March 19, 1980, the Busicks filed a "Motion to Reconsider Adjudication," claiming that mistake, surprise, or excusable neglect warranted reconsideration on the merits. Specifically, the Busicks' attorney, one Larry Busick,*fn1 claimed that he had not noticed the March 11 date in the summons, and that he had calculated the statutory 20-day time period in which to file a response from February 25, 1980, the date on which service by certified mail was effected. He also claimed that his heavy workload precluded preparation of responses at an earlier date. It was asserted that appellant had a meritorious defense to involuntary bankruptcy in that no debtor-creditor relationship existed between her and the petitioning creditors. The Busicks requested that the order of March 12 be set aside, and that they be permitted to file responsive pleadings.
A hearing on the motion to reconsider was held. In an order dated May 19, 1980, the bankruptcy court denied the motion as to Leo Busick, and continued hearing on the motion as to appellant to May 20, 1980. In an order dated June 5, 1980, the court ordered briefing on the motion.
On June 26, 1980, creditors-appellees filed a petition to amend the joint involuntary petition on the ground that the Administrative Office of the United States Courts had indicated that only joint voluntary petitions may be filed under 11 U.S.C. § 302 (a). Appellees sought leave to file individual involuntary petitions against Jane and Leo Busick relating back to the original filing date. In an order dated June 27, 1980, leave to do so was granted. On July 2, 1980, the amended petitions were filed; a new docket number was assigned in appellant's case, and a separate filing fee was paid.
In an order dated August 5, 1980, disposing of the motion of March 19, 1980, the court stated that appellant's response clearly was not timely filed; the court noted, however, that it had given appellant an opportunity at a hearing to demonstrate that she was prejudiced by entry of the default judgment (i.e., that she had a meritorious defense to involuntary bankruptcy).
In the order of August 5, the court proceeded to analyze the merits of appellant's defense that no debtor-creditor relationship existed between her and the petitioning creditors. The court made the following findings of fact: (1) Leo Busick was engaged in the businesses of building homes, selling and installing swimming pools, and managing rental properties; (2) Jane Busick was not involved in Leo Busick's business affairs; (3) most of the Busicks' real property was owned in tenancy by the entirety; (4) the contracts for services and materials out of which the creditors' claims arose were entered into by Leo Busick; (5) there were no express agreements between Jane Busick and the creditors that she would be liable for the amounts due on the contracts; and (6) the materials and services were provided for the real property held by the Busicks as tenants by the entirety. The court concluded that although Leo Busick's contracts with the creditors were his individual indebtedness, the benefits flowing from the provision of services and materials inured to the real property held by Jane and Leo in tenancy by the entirety. Therefore, Leo was presumed to have had the authority to act for Jane, rendering her liable for the debts.*fn2 In conclusion, the court stated that appellant Jane Busick had presented no meritorious defense to involuntary bankruptcy; the motion to reconsider was denied.
On August 11, 1980, appellant, with newly-retained counsel, filed pursuant to Rule 923 of the Rules of Bankruptcy Procedure a motion to alter or amend the judgment of August 5, 1980, claiming that the court's finding that Leo Busick acted as agent for Jane Busick in contracting with the petitioning creditors solely because the benefits inured to real property held in tenancy by the entirety was contrary to the evidence and contrary to Indiana law. Appellant requested vacation of the March 12 order for relief, and judgment in her favor.*fn3
In an order dated December 15, 1980, the bankruptcy court denied the motion to alter or amend the judgment of August 5, 1980 on the ground that appellant's response to the original petition was not timely filed. The court further denied a motion to stay judgment pending appeal to the ...