Vacating a Judgment under Rule 60(b)(4): A Review of the Espinosa Decision

This article addresses the requirements for vacating a judgment or order as void under Rule 60(b)(4) of the Federal Rules of Civil Procedure, including a review of the Supreme Court’s recent decision in United Student Aid Funds Inc. v. Espinosa, as it pertains to Rule 60(b)(4).

 

Rule 60(b), made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 9024, permits relief from a final judgment or order.[1] Rule 60(b)(4) specifically provides that “the court may relieve a party or its legal representative from a final judgment, order, or proceeding [if]…the judgment is void.”[2] Courts have narrowly construed the concept of a “void” order under Rule 60(b)(4) because of the threat to finality of judgments and the risk that litigants will sleep on their rights or use Rule 60(b)(4) to circumvent an appeal process they elected not to follow.[3] Consequently, relief is granted under Rule 60(b)(4) in the most exceptional of cases.[4] 

A judgment is void under Rule 60(b)(4) if the court that rendered the decision lacked jurisdiction over the subject matter or parties.[5] A lack of subject-matter jurisdiction, however, will not always render a final judgment void under Rule 60(b)(4).[6] A party seeking to void the judgment must demonstrate more than the court erred in asserting subject-matter jurisdiction over the claim. Rather, the party must establish the court’s exercise of jurisdiction over the claim amounted to a “plain usurpation of judicial power.”[7] Only when the jurisdictional error is “egregious” will a court treat the judgment as void.[8] A judgment may also be void under Rule 60(b)(4) if it is entered in a manner inconsistent with due process.[9] Specifically, inadequate notice or failure to provide notice or service of process may result in a lack of due process rendering a judgment void.[10] 

A motion under Rule 60(b)(4) must be made “within a reasonable time.”[11] However, courts have held that a motion to vacate a judgment as void may be brought at any time, regardless of the statute of limitations and other deadlines.[12] In addition, a court, on its own motion, may set aside a judgment as void provided notice is given of the contemplated action and an opportunity to be heard.[13]

 

The Supreme Court rejected an attempt to use Rule 60(b)(4) to void an order confirming  the Debtor’s plan.  In doing so, it clarified the application of Rule 60(b)(4) in bankruptcy cases.  Recently, the Supreme Court considered whether an order confirming the discharge of a student loan debt without an undue hardship finding or an adversary proceeding, or both, is a void judgment under Rule 60(b)(4).[14] In Espinosa, the debtor filed a chapter 13 plan that proposed to repay the principal on his student loan debt and discharge the interest once the principal was repaid.[15] Under the Bankruptcy Code, a debtor may obtain a discharge of government-sponsored student loan debts only if failure to discharge that debt imposes an “undue hardship” on the debtor.[16] The Bankruptcy Rules require a debtor seeking such a discharge to obtain an undue-hardship determination from a bankruptcy court through an adversary proceeding.[17] The debtor in Espinosa did not initiate an adversary proceeding to obtain a determination of undue hardship.[18] The student loan creditor received notice of the plan from the bankruptcy court but did not object to the plan, contest the debtor’s failure to file an adversary proceeding or appeal the confirmation order.[19] 

After the debtor completed the payments on his student loan principal, the bankruptcy court discharged the debtor’s student loan interest. Several years later, the creditor commenced efforts to collect the unpaid interest on the student loans.[20] The debtor filed a motion to enforce the discharge order by directing the creditor to cease all efforts to collect the unpaid interest on the student loan debt. The creditor opposed the motion and filed a cross-motion under Rule 60(b)(4) seeking to set aside as void the bankruptcy court’s order confirming the plan on two grounds.[21] First, the creditor argued that the plan provision authorizing the discharge of the loan interest violated the Bankruptcy Code, which requires the court to find undue hardship before discharging a student loan debt, and the Bankruptcy Rules, which require the court to make the undue hardship finding in an adversary proceeding.[22] Second, the creditor argued that its due-process rights had been violated because the debtor failed to serve it with a summons and complaint as required by the Bankruptcy Rules.[23] The bankruptcy court denied the creditor’s cross-motion and the creditor appealed. The district court reversed, finding that the creditor was denied due process because the confirmation order was issued without the required adversary proceeding. 

On appeal, the Ninth Circuit found that the bankruptcy court erred in confirming the plan without making an undue hardship determination in an adversary proceeding, but held that such error was not a basis to set aside the confirmation order as void under Rule 60(b)(4). The Ninth Circuit acknowledged that the debtor’s failure to serve the creditor with a summons and complaint before seeking a discharge of the debt violated the Bankruptcy Rules, but found the service defect was not a basis to declare the judgment void because the creditor received actual notice of the plan and failed to object.[24]

 

The Supreme Court unanimously held that there was neither a jurisdictional error nor violation of due process to render the bankruptcy court’s order void under Rule 60(b)(4).[25] In reaching its decision, the Court found that the order confirming the debtor’s plan was a final judgment, from which the creditor did not appeal. The Court noted that Rule 60(b)(4) provides an “exception to finality” that allows a party to seek relief from a final judgment under a limited set of circumstances, such as when a judgment is “void.” The Court explained:

 

A void judgment is a legal nullity. Although the term “void” describes a result, rather than the conditions that render a judgment unenforceable, it suffices to say that a void judgment is one so affected by a fundamental infirmity that the infirmity may be raised even after the judgment becomes final… The list of such infirmities is exceedingly short; otherwise, Rule 60(b)(4)’s exception to finality would swallow the rule. A judgment is not void, for example, simply because it is or may have been erroneous… Similarly, a motion under Rule 60(b)(4) is not a substitute for a timely appeal… Instead, Rule 60(b)(4) applies only in the rare instance where a judgment is premised either on a certain type of jurisdictional error or on a violation of due process that deprives a party of notice or the opportunity to be heard.[26]