Unpublished Disposition, 886 F.2d 1320 (9th Cir. 1988)

MEMORANDUM^* 

Fire and Casualty Insurance Company ("F & C") timely appeals the district court's judgment that the bankruptcy judge dismissed without prejudice Fredya Jones' and Herbert Wolas' insurance bad faith suit against F & C. Jones and Wolas filed this suit as an adversary proceeding in the bankruptcy of Jones' ex-husband, Robert Jones. Wolas is the trustee of Robert Jones' bankrupt estate. Fredya Jones timely cross-appeals the district judge's finding that the bankruptcy judge did not abuse his discretion in denying her Rule 60(b) (1) motion requesting relief from the dismissal. We reverse the district judge's finding that the dismissal was without prejudice but affirm his conclusion that the bankruptcy judge did not abuse his discretion in denying Mrs. Jones' Rule 60(b) (1) motion.

In late August of 1983, Robert and Fredya Jones took out an F & C fire insurance policy on their Los Angeles home. Although the Joneses had separated in 1982, the policy was in both their names. Mr. and Mrs. Jones were divorced in 1983, and Mrs. Jones received their home pursuant to a settlement agreement. F & C was not notified of the change in ownership. On July 2, 1985, fire destroyed the Jones residence. Mrs. Jones subsequently tendered a demand on F & C for $355,000, the alleged replacement cost of the home. One month after the home had burned, Mr. Jones filed for Chapter 7 bankruptcy, and Wolas, as trustee, succeeded to Mr. Jones' rights in the fire insurance policy. F & C refused to pay the $355,000 Mrs. Jones demanded on the grounds that F & C's liability was limited under the replacement cost provision of the policy. Instead, F & C deposited $257,927.75 with Wolas.

On July 2, 1986, Wolas joined Mrs. Jones in filing an adversary action against F & C in the bankruptcy proceeding alleging fraud, breach of contract, and breach of the implied covenant of good faith and fair dealing. The summons and complaint were never served and no further action was taken in this suit. On February 6, 1987, seven months after the adversary action had been filed, the bankruptcy court dismissed the adversary proceeding for failure to prosecute, stating that " [a]fter reviewing the record of the above proceeding, it appears that this matter has been pending in this Court for an unreasonable period of time without any activity having been taken therein...." In his dismissal order, the bankruptcy judge also ordered that any motion to vacate the dismissal be filed within ten days of its entry.

On December 15, 1987, ten months after dismissal and a year and five months after filing of the complaint, Mrs. Jones filed a Rule 60(b) (1) motion for relief from the dismissal. In that motion Mrs. Jones alleged that her failure to prosecute the adversary proceeding was "the direct result of mistake, inadvertence and excusable neglect." On February 19, 1988, the bankruptcy judge denied this motion.

On February 26, 1988, Mrs. Jones appealed this order. This appeal was first referred to the Bankruptcy Appellate Panel ("BAP") but was transferred to the Central District of California after F & C objected to the disposition of this matter by the BAP. On June 16, 1988, District Court Judge Matthew Byrne affirmed the bankruptcy judge's denial of Mrs. Jones' Rule 60(b) (1) motion and held that, although the bankruptcy judge did not specify whether he dismissed the adversary proceeding with or without prejudice, that dismissal was without prejudice. F & C timely appealed the finding that the dismissal order was without prejudice. Mrs. Jones then timely cross-appealed the district judge's affirmance of the bankruptcy judge's denial of Mrs. Jones' Rule 60(b) (1) motion. F & C agreed to assume the role of appellant after Mrs. Jones represented that she would not have appealed the district court's decision but for F & C's appeal.

We review the district court's decision de novo because we are in as good a position as the district court to review the findings of the bankruptcy judge. In re Jee, 799 F.2d 532, 534 (9th Cir. 1986), cert. denied, 481 U.S. 1015 (1987).

Bankruptcy Rule 7041 provides that, with one exception that is not relevant to this case, Fed. R. Civ. P. 41 is to apply in adversary proceedings. 11 U.S.C. § 7041. Fed. R. Civ. P. Rule 41(b) states in pertinent part that an involuntary dismissal for failure of the plaintiff to prosecute operates as an adjudication upon the merits unless the court in its order for dismissal otherwise specifies. In In re Jee we confirmed that under Rule 41(b) a judgment of dismissal is to be considered with prejudice if that judgment is silent as to its prejudicial effect. 799 F.2d at 534 n. 2.

All parties in this case agree that the bankruptcy judge's order dismissing the case for failure to prosecute does not specify whether the dismissal is with or without prejudice. The plain language of Rule 41(b) thus reveals the district judge's conclusion that the dismissal was without prejudice to be incorrect. In re Jee attests to the fact that a Rule 41(b) dismissal for failure to prosecute that does not specify whether it is with or without prejudice operates as an adjudication upon the merits. 799 F.2d at 534 n. 2. We therefore reverse the district court on the issue of prejudice and hold that the bankruptcy judge's dismissal of this adversary proceeding operates as an adjudication on the merits.

Mrs. Jones' brief attempts to question both the bankruptcy court's denial of her Rule 60(b) (1) motion and the bankruptcy court's failure to specify that its dismissal order was without prejudice. Mrs. Jones' amended notice of appeal from the bankruptcy court, however, seeks to appeal only the bankruptcy judge's denial of the Rule 60(b) (1) motion. According to F & C, the district court raised sua sponte the issue of whether the underlying dismissal was with or without prejudice. The only issue before us on cross-appeal is thus the denial of the Rule 60(b) (1) motion. Such an issue entails review only of the denial itself and not of the underlying dismissal. See Hayward v. Britt, 572 F.2d 1324, 1325 (9th Cir. 1978) (per curiam).

We may set aside the bankruptcy judge's denial of the Rule 60(b) (1) motion only if that denial constitutes an abuse of discretion. In re Burley, 738 F.2d 981, 988 (9th Cir. 1984). In reviewing the grant or denial of a Rule 60(b) (1) motion, we must recognize both that the trial judge has wide discretion in passing upon such a motion and that the policy of the law is to favor hearing a litigant's claim on the merits. See Russell v. Cunningham, 279 F.2d 797, 804 (9th Cir. 1960); see also Torres v. S.S. Pierce Co., 471 F.2d 473, 474 (9th Cir. 1972) (per curiam) (overturning trial court's denial of Rule 60(b) (1) motion while emphasizing that " [w]e remain extremely reluctant to disturb discretionary action of the district courts in their efforts to eliminate dead wood from their calendars and hasten their cases to disposition").¹ 

We thus face the question of whether the bankruptcy judge abused his discretion in finding that Mrs. Jones had not demonstrated excusable neglect, inadvertence or mistake. Mrs. Jones claims that she initially assumed Mr. Wolas' attorney would take care of her interests and that, because of confusion surrounding her representation, she knew nothing about the dismissal order until July of 1987. Mrs. Jones further avers that she did not file her motion to vacate the dismissal in July because her second attorney, Mr. Spivak, told her not to worry about it.

These allegations would support grant of a Rule 60(b) (1) motion. See U.S. v. Moradi, 673 F.2d 725, 728 (4th Cir. 1982) (" [J]ustice ... demands that a blameless party not be disadvantaged by the errors or neglect of his attorney which cause a final, involuntary termination of proceedings.") Because of the wide discretion we allow the trial judge in determining the fate of Rule 60(b) motions, however, the bankruptcy judge did not abuse his discretion in denying Mrs. Jones' motion to vacate the order dismissing her case. See Meadows v. Dominican Republic, 817 F.2d 517, 521 (9th Cir. 1987) ("We have held that we will reverse such a ruling 'only upon a clear showing of an abuse of discretion' ") (quoting Pena v. Seguros La Comercial, S.A., 770 F.2d 811, 814 (9th Cir. 1985)) (emphasis in original), cert. denied, 108 S. Ct. 486 (1987). This case does not present the sort of "story of long and repeated efforts to establish a basis for the appellant to finally get his case tried" that has characterized cases where we have found the trial judge's refusal to set aside a dismissal for failure of prosecution to be an abuse of discretion. Russell v. Cunningham, 279 F.2d 797; see also Torres v. S.S. Pierce Co., 471 F.2d 473. We therefore affirm the district court's conclusion that the bankruptcy judge did not abuse his discretion in denying Mrs. Jones' Rule 60(b) (1) motion.

For the reasons stated above, we REVERSE Judge Byrne's determination that the bankruptcy judge's dismissal was without prejudice and hold instead that the dismissal order operates as an adjudication upon the merits. We AFFIRM Judge Byrne's conclusion that the bankruptcy judge did not abuse his discretion in denying Mrs. Jones' Rule 60(b) (1) motion for relief from the dismissal.

REVERSED in part and AFFIRMED in part.