1990 #09, Bak, 4-5-90

In re: ROBERT ALLEN & ELSIE J. BAK D/B/A BAK CONSTRUCTION COMPANY, Bankr. No. 386-00049, Adversary 88-3003, Chapter 11

The Court has before it United States Fidelity & Guaranty Companys motion for relief from this Courts order entered February 5, 1990. That order decreed that First Fidelity Bank of Murdo was entitled to certain pipe that was abandoned by Baks at the Estelline Project site, and was based upon a stipulation of facts entered into by USF&G and First Fidelity Bank. The stipulation stated that First Fidelity possessed a valid perfected security interest in Baks inventory including the pipe, when in fact no such perfected security interest existed. USF&G moved for relief from the judgment as it pertained to the pipe, claiming that the stipulation was based upon a mistake or misrepresentation as to First Fidelitys secured status in Baks inventory. Counsel for First Fidelity, conceded that the stipulation was incorrect insofar as it related to the existence of a perfected security interest in favor or First Fidelity in Baks inventory.

Bankruptcy Rule 9024 states that Rule 60 of the Federal Rules of Civil Procedure applies in bankruptcy cases, with certain exceptions not applicable here. Under Rule 60(b), relief from a final judgment may be granted due to:

(1) mistake, inadvertence, surprise, or excusable neglect;

. . .

(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;

. . .

(6) any other reason justifying relief from the operation of the judgment. The motion shall be made within reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order or proceeding was entered or taken.

First Fidelity never possessed a perfected security interest in the pipe left at the project site, and the assertion to the contrary in the stipulation of facts appears to be an innocent mistake. Under the circumstances, the Court concludes that sufficient cause exists to relieve USF&G from the Courts earlier judgment. Further, on the basis of the facts as they now stand, and as a corollary to the holding in Aetna Casualty & Surety Co. v. J.F. Brunken & Son, Inc., 357 F.Supp. 290 (D.S.D. 1973), the Court concludes that First Fidelitys unperfected security interest in the pipe is subordinate to USF&Gs interest by virtue of its payment and performance bonds.

The Court thus will grant USF&Gs motion for relief and will amend its order to provide that USF&G is entitled to the pipe in question.