FILED 1 MAY 30 2017 SUSAN M. SPRAUL, CLERK 2 U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. CC-16-1318-KuFL ) 6 AHMAD J. TUKHI, ) Bk. No. 8:15-bk-14015-MW ) 7 Debtor. ) Adv. No. 8:15-ap-01449-MW ______________________________) 8 ) ABDUL HABIB OLOMI, ) 9 ) Appellant, ) 10 ) v. ) OPINION 11 ) AHMAD J. TUKHI, ) 12 ) Appellee. ) 13 ______________________________) 14 Argued and Submitted on March 23, 2017 at Pasadena, California 15 Filed – May 30, 2017 16 Appeal from the United States Bankruptcy Court 17 for the Central District of California 18 Honorable Mark S. Wallace, Bankruptcy Judge, Presiding 19 Appearances: Nikolaus W. Reed argued for appellant; Randal Paul Mroczynski of Cooksey, Toolen, Gage, Duffy & Woog 20 argued for appellee. 21 22 Before: KURTZ, FARIS and LAFFERTY, Bankruptcy Judges. 23 24 25 26 27 28 1 KURTZ, Bankruptcy Judge: 2 3 INTRODUCTION 4 Abdul Habib Olomi appeals from a judgment dismissing his 5 nondischargeability action against chapter 71 debtor Ahmad J. 6 Tukhi. The bankruptcy court dismissed the action because Olomi 7 appeared for a pretrial conference without having filed or served 8 a pretrial stipulation as required by the bankruptcy court’s 9 Local Rule 7016-1(b) and (c). According to the bankruptcy court, 10 Olomi’s noncompliance was the result of the “fault” of his 11 counsel but was neither willful nor done in bad faith. 12 Even though this one-time act of noncompliance would have 13 resulted merely in several weeks of delay in the pretrial 14 proceedings, the bankruptcy court held that dismissal was 15 appropriate either under its Local Rule 7016-1(f) sanctioning 16 authority or as a failure to prosecute under Civil Rule 41(b) 17 (made applicable in adversary proceedings by Rule 7041). The 18 bankruptcy court’s dismissal order was an abuse of discretion. 19 The bankruptcy court did not apply the correct legal standard 20 before imposing the sanction of dismissal based on a Local Rule 21 violation. Furthermore, the facts in the record do not support 22 dismissal either based on the Local Rule violation or based on a 23 failure to prosecute. 24 1 Unless specified otherwise, all chapter and section 25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 26 all “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All “Civil Rule” references are to 27 the Federal Rules of Civil Procedure, and all “Local Rule” references are to the Local Rules of the United States Bankruptcy 28 Court for the Central District of California.
2 1 Accordingly, the bankruptcy court’s judgment of dismissal is 2 VACATED, and this matter is REMANDED for completion of pretrial 3 proceedings and the setting of a trial date. 4 FACTS 5 Tukhi commenced his bankruptcy case in August 2015, and 6 Olomi timely filed a nondischargeability complaint against Tukhi 7 in November 2015. Olomi stated a single claim for relief under 8 § 523(a)(6) for a debt allegedly arising from a willful and 9 malicious injury. According to Olomi, Tukhi intentionally struck 10 him with an automobile. 11 The nondischargeability action proceeded without incident – 12 even smoothly – up until the time the parties’ joint pretrial 13 stipulation was due. In the bankruptcy court’s scheduling order 14 entered March 7, 2016, the bankruptcy court set a pretrial 15 conference date of September 28, 2016. The scheduling order 16 contained the following warning: 17 The parties are placed on notice that it is the Court’s policy to strictly enforce the Local Bankruptcy Rules 18 relating to pre-trial conferences and this Court’s procedures supplement to those rules, which are 19 published on the court’s website. Failure to comply with the provisions of this order may subject the 20 responsible party to sanctions, including judgment of dismissal or the entry of a default and a striking of 21 the answer. 22 Scheduling Order (Mar. 7, 2016) at pp. 2-3 (emphasis in 23 original). 24 The bankruptcy court obviously considered it extremely 25 important to obtain the litigants’ compliance with its pretrial 26 procedures. The scheduling order admonition was the fourth of 27 four advance warnings regarding the importance of adhering to 28 required pretrial procedures. At the initial status conference
3 1 held immediately before the scheduling order was issued, the 2 bankruptcy court stated as follows: 3 THE COURT: And the Court wishes to advise the parties that the Court applies the Local Bankruptcy 4 Rules relating to pretrial conferences very strictly. The Court views the pretrial conference as an 5 indispensable part of the resolution of this matter and probably the second most important proceeding after the 6 trial itself. 7 And for that reason, it’s the Court’s practice that if there is a material default by the plaintiff in 8 compliance with the Local Bankruptcy Rules relating to pretrial conferences, the most likely outcome is that 9 the Court will grant judgment of dismissal in favor of the defendant and, on the other hand, if there’s a 10 material default by the defendant, the Court’s most likely outcome is that the Court would strike the 11 answer and enter a default. 12 These consequences are in the nature of terminating sanctions. The Court believes that those 13 types of -- that that type of sanction is appropriate in connection with pretrial conferences because to 14 allow a material breach of those rules and to simply impose a monetary sanctions it could be viewed as 15 setting up a situation where there’s simply a toll charge for violating the Local Bankruptcy Rules and I 16 don’t think that’s appropriate. So the parties are on notice of the Court’s intentions in this regard and the 17 Court will certainly be looking to the parties to fully comply with those Local Bankruptcy Rules. 18 19 Hr’g Tr. (Mar. 2, 2016) at 4:14-5:15.2 20 There were similar warnings about the importance of the 21 pretrial procedures in form instructions accompanying the summons 22 and in the presiding judge’s supplemental procedures set forth on 23 the court’s website. Indeed, the form instructions accompanying 24 2 Neither party included in their excerpts of record a copy 25 of the transcript from the March 2, 2016 status conference. 26 Nonetheless, we can consider the contents of this transcript, which we obtained by accessing the bankruptcy court’s electronic 27 docket. See Franklin High Yield Tax–Free Income Fund v. City of Stockton, Cal. (In re City of Stockton, Cal.), 542 B.R. 261, 265 28 n.2 (9th Cir. BAP 2015).
4 1 the summons stated: 2 11. Joint Pre-Trial Order. Failure to timely file a Joint Pre-Trial order may subject the responsible party 3 and/or counsel to sanctions, which may include dismissal of the adversary proceeding. The failure of 4 either party to cooperate in the preparation of timely filing of a Joint Pre-Trial Conference [sic] or appear 5 at the Joint Pre-Trial Conference may result in the imposition of sanctions under LBR 7016-1(f) or (g). 6 7 Early meeting of Counsel and Status Conference Instructions (Nov. 8 19, 2015) at ¶ 11 (emphasis in original). 9 Notwithstanding all of these warnings, and the unequivocal 10 requirement set forth in Local Rule 7016-1(b) and (c) for the 11 preparation, service and filing of a joint pretrial stipulation 12 in advance of the pretrial conference, Olomi attended the 13 pretrial conference without having first served or filed the 14 requisite pretrial stipulation. When the court asked Olomi’s 15 counsel where his pretrial stipulation was, counsel explained 16 that he had mistakenly prepared and filed instead a joint status 17 report because he was inexperienced in practicing before the 18 bankruptcy court and had misread what the “statute” required. 19 The bankruptcy court seemed to credit counsel’s explanation for 20 his noncompliance but nonetheless concluded that dismissal was 21 appropriate under Local Rule 7016-1(f)(4). The court reasoned 22 that dismissal was justified because: (1) the pretrial 23 conference and the pretrial procedures were very important; 24 (2) Olomi had been warned of that importance and of the 25 consequences for failure to comply; and (3) lesser sanctions in 26 the form of monetary sanctions would amount to nothing more than 27 a “toll charge” for violating the very important pretrial 28 procedures. The bankruptcy court reiterated the same reasoning
5 1 in its written order of dismissal. 2 Within a few days of the bankruptcy court’s dismissal 3 ruling, Olomi simultaneously filed both a notice of appeal and a 4 motion for reconsideration. Olomi explicitly based his 5 reconsideration motion on Civil Rule 60(b)(1), as made applicable 6 in bankruptcy cases pursuant to Rule 9024. Olomi maintained that 7 the court should grant him relief from his excusable neglect 8 under the factors set forth in Pioneer Investment Services v. 9 Brunswick Assocs., 507 U.S. 380, 395 (1993). 10 Olomi’s counsel filed a declaration in support of the 11 reconsideration motion in which he elaborated on his efforts to 12 comply with the court’s pretrial procedures. As Olomi’s counsel 13 put it, he and his paralegal “discussed and reviewed” the Local 14 Rules in July 2016 and prepared a draft joint pretrial 15 stipulation as well as a draft joint status report at the time. 16 However, in September 2016, when it came time to submit these 17 documents, he asserts that he only found the draft joint status 18 report on his computer, and he did not recall the Local Rule 19 requirement to file and serve the draft joint pretrial 20 stipulation. According to Olomi’s counsel, he carefully reviewed 21 the March 2016 scheduling order and also reviewed the docket, and 22 neither mentioned any deadline for filing or serving a joint 23 pretrial stipulation, so he (erroneously) thought that filing and 24 serving the joint status report would comply with the relevant 25 pretrial procedures. 26 After full briefing and a hearing, the bankruptcy court took 27 the matter under submission and ultimately issued a nine-page 28 memorandum decision and order denying the reconsideration motion.
6 1 Even though Olomi specifically asked for relief under Rule 9024 2 and Civil Rule 60(b), the bankruptcy court treated Olomi’s motion 3 as a motion to alter or amend the judgment under Rule 9023 and 4 Civil Rule 59(e). In relevant part, the bankruptcy court ruled 5 that it did not commit any manifest error of law when it 6 dismissed Olomi’s adversary proceeding. Interestingly, in making 7 this ruling, the court analyzed the dismissal as if it were based 8 on a failure to prosecute under Rule 7041 and Civil Rule 41(b); 9 in contrast, at the time of the pretrial conference, the court 10 had based the dismissal on violation of Local Rule 7016-1(c) and 11 (e) – sanctionable pursuant to Local Rule 7016-1(f). 12 In any event, after considering the additional evidence 13 submitted in support of the postjudgment motion, identifying the 14 five-part test for dismissals for failure to prosecute and 15 enhancing its findings in support of its dismissal ruling, the 16 bankruptcy court concluded that the dismissal did not constitute 17 a manifest injustice and that the postjudgment motion should be 18 denied. 19 Olomi timely appealed the judgment of dismissal, but he did 20 not file a new or amended notice of appeal from the order denying 21 his postjudgment motion. 22 JURISDICTION 23 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 24 §§ 1334 and 157(b)(2)(I), and we have jurisdiction under 28 25 U.S.C. § 158 to review the bankruptcy court’s judgment of 26 dismissal. 27 We do not have jurisdiction to review the bankruptcy court’s 28 order denying Olomi’s postjudgment motion. As the governing Rule
7 1 specifies: 2 If a party intends to challenge an order disposing of any motion listed in subdivision (b)(1) . . . the party 3 must file a notice of appeal or an amended notice of appeal. The notice or amended notice must . . . be 4 filed within the time prescribed by this rule, measured from the entry of the order disposing of the last such 5 remaining motion. 6 Rule 8002(b)(3). An appellant’s failure to comply with the 7 appeal filing deadlines set forth in Rule 8002 typically deprives 8 us of jurisdiction. See Slimick v. Silva (In re Slimick), 928 9 F.2d 304, 306 (9th Cir. 1990). 10 That being said, in reviewing the bankruptcy court’s 11 judgment of dismissal, we have jurisdiction (and a duty) to 12 review any enhanced findings or “new factual determinations” the 13 bankruptcy court made in support of its original ruling – even if 14 those enhanced findings were part of the court’s ruling on a 15 postjudgment motion that never was appealed and even if the court 16 considered and relied upon evidence that was not presented until 17 after the bankruptcy court made its original ruling. Moldo v. 18 Ash (In re Thomas), 428 F.3d 1266, 1268-69 (9th Cir. 2005) (“The 19 BAP erred in concluding that it lacked jurisdiction to review the 20 bankruptcy court’s amended findings”); see also Ash v. Moldo (In 21 re Thomas), 2006 WL 6811032 at *4-7 (9th Cir. BAP 2006) (on 22 remand from Circuit, holding that bankruptcy court’s amended 23 findings were clearly erroneous based on evidence submitted to 24 the court as part of postjudgment proceedings). 25 ISSUE 26 Did the bankruptcy court abuse its discretion when it 27 dismissed Olomi’s nondischargeability action? 28
8 1 STANDARDS OF REVIEW 2 We review a bankruptcy court’s local-rules based dismissal 3 for an abuse of discretion. Lee v. Roessler-Lobert (In re 4 Roessler-Lobert), ___ B.R. ___, 2017 WL 2189520, *4 (9th Cir. BAP 5 May 15, 2017). We similarly review a bankruptcy court’s 6 dismissal for lack of prosecution. Omstead v. Dell, Inc., 594 7 F.3d 1081, 1084 (9th Cir. 2010); Moneymaker v. CoBEN (In re 8 Eisen), 31 F.3d 1447, 1451 (9th Cir. 1994). 9 We employ a two-part test to determine whether the 10 bankruptcy court abused its discretion. United States v. 11 Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc). 12 First, we review de novo whether the bankruptcy court identified 13 and applied the correct legal rule. Id. Second, we examine the 14 bankruptcy court’s factual findings under the clearly erroneous 15 standard. Id. at 1262 & n.20. We must affirm the bankruptcy 16 court’s factual findings unless they were “(1) illogical, (2) 17 implausible, or (3) without support in inferences that may be 18 drawn from the facts in the record.” Id. (internal citations 19 omitted). 20 DISCUSSION 21 A. Dismissal Based On Local Rule Violation 22 In its original dismissal ruling, the bankruptcy court 23 relied on one of the sanctions provisions in its Local Rules - 24 Local Rule 7016-1(f)(4). On its face, that Local Rule authorized 25 the bankruptcy court to dismiss Olomi’s action based on his 26 violation of Local Rule 7016-1(b) and (c), which imposed a duty 27 on Olomi as the plaintiff to prepare, sign and serve a draft 28 pretrial stipulation.
9 1 This Panel has held that dismissal sanctions based on local 2 rule violations must be supported by a finding of a degree of 3 culpability higher than mere negligence or fault, such as 4 “willfulness, bad faith, recklessness, or gross negligence” or a 5 “repeated disregard of court rules.” In re Roessler-Lobert, ___ 6 B.R. ___, 2017 WL 2189520, *10; see also Kostecki v. Sutton (In 7 re Sutton), 2015 WL 7776658, at *8 (Mem. Dec.) (9th Cir. BAP Dec. 8 3, 2015); Taylor v. Singh (In re Singh), 2016 WL 770195, at *4-5 9 (Mem. Dec.) (9th Cir. BAP Feb. 26, 2016). 10 In so holding, In re Roessler-Lobert relied on Zambrano v. 11 City of Tustin, 885 F.2d 1473, 1480 (9th Cir. 1989). In addition 12 to requiring the above-referenced finding assessing the 13 culpability and/or state of mind of the rule violator, Zambrano 14 indicated that any sanctions order based on a local rule 15 violation needed to be “proportionate to the offense and 16 commensurate with principles of restraint and dignity inherent in 17 judicial power.” Zambrano, 885 F.2d at 1480. The bankruptcy 18 court also needed to consider: “(1) the public’s interest in 19 expeditious resolution of litigation; (2) the court’s need to 20 manage its docket; (3) the risk of prejudice to the defendants; 21 (4) the public policy favoring disposition of cases on their 22 merits[;] and (5) the availability of less drastic sanctions.” 23 In re Roessler-Lobert, ___ B.R. ___, 2017 WL 2189520, *5, 10 24 (citing Henderson v. Duncan, 779 F.2d 1421, 1423 (9th Cir. 25 1986)). 26 The bankruptcy court, here, did not consider the three-part 27 Zambrano test. Prejudgment, the court did not consider the 28 culpability or state of mind of Olomi or his counsel, nor did the
10 1 court apply the traditional five-factor dismissal sanctions 2 standard originating from Henderson. In addition, nothing in the 3 court’s comments indicated that it ever considered, pre- or 4 postjudgment, whether the dismissal sanction was proportionate to 5 the offense. 6 Zambrano and In re Roessler-Lobert indicate that we may 7 review the record ourselves and independently determine whether 8 the record supported the bankruptcy court’s sanctions ruling. 9 Zambrano, 885 F.2d at 1484 & n.32; In re Roessler-Lobert, ___ 10 B.R. ___, 2017 WL 2189520, *5. But the prejudgment record is 11 inadequate to support dismissal under Zambrano and In re 12 Roessler-Lobert. At the time of the pretrial conference, there 13 was no prior history in the adversary proceeding of any delay or 14 noncompliance, and Olomi’s counsel only stated that he had not 15 filed the required pretrial stipulation because he had misread 16 the rules and had thought a joint status report would be 17 sufficient. Thus, absent a finding that Olomi’s counsel’s 18 explanation was not credible, the record as it existed at that 19 time essentially precluded a finding of culpability sufficient to 20 support dismissal under Zambrano and In re Roessler-Lobert. The 21 same record limitations effectively would have made it impossible 22 to find that dismissal was proportionate to the offense or 23 commensurate with judicial restraint. 24 Postjudgment, in the process of denying Olomi’s 25 reconsideration motion, the bankruptcy court specifically 26 considered whether Olomi’s noncompliance was the result of 27 willfulness, bad faith or fault, and the court explicitly 28 determined that “Plaintiff’s failure [was] due to fault.” Mem.
11 1 Dec. (Nov. 10, 2106) at 6:25. As stated above, mere “fault” is 2 insufficient under Zambrano and In re Roessler-Lobert to justify 3 sanctions for violation of a Local Rule. Nor does the additional 4 evidence in the record regarding Olomi’s attempts to comply with 5 pretrial procedures persuade us that the record could have 6 supported a gross negligence, recklessness or willfulness 7 finding. 8 In short, the prejudgment record was insufficient under 9 Zambrano and In re Roessler-Lobert to support the bankruptcy 10 court’s dismissal sanction based on a local rule violation, and 11 none of the additional evidence presented or enhanced findings 12 made postjudgment cured that insufficiency. 13 B. Dismissal Based On A Delay In Prosecution 14 As stated in the facts section, supra, the bankruptcy court 15 offered a different legal basis for its dismissal sanction when 16 it ruled on Olomi’s reconsideration motion. According to the 17 court’s ruling denying the reconsideration motion, dismissal was 18 appropriate under Civil Rule 41(b) as made applicable in 19 adversary proceedings by Rule 7041. The elements for a Civil 20 Rule 41(b) dismissal for failure to prosecute are different than 21 those set forth above for a dismissal for violation of local 22 court rules. See In re Roessler-Lobert, ___ B.R. ___, 2017 WL 23 2189520, *5, 10. Dismissal for failure to prosecute must be 24 supported by a showing of unreasonable delay and by consideration 25 of the five Henderson factors. Id. While no showing of 26 heightened culpability is required, the delaying party’s mental 27 state typically is relevant, and the bankruptcy court should 28 consider any excuse offered by the delaying party in the process
12 1 of determining whether the delay was unreasonable and whether 2 there is a risk of prejudice to the adverse party. Id. at *5 & 3 n.8. 4 Even though Olomi did not appeal the bankruptcy court’s 5 order denying his reconsideration motion, we will look at the 6 bankruptcy court’s postjudgment findings on each of the five 7 Henderson factors, and we will consider all of the evidence 8 before the court at the time those findings were made. See In re 9 Thomas, 428 F.3d at 1268-69. 10 1. The Public’s Interest In Expeditious Resolution of 11 Litigation 12 The bankruptcy court found that the public’s interest in the 13 expeditious resolution of litigation lightly militated in favor 14 of dismissal. The bankruptcy court acknowledged that the 15 expeditious resolution of litigation was implicated by Olomi’s 16 noncompliance only to the extent that the noncompliance resulted 17 in a delay in the resolution of the litigation. As the 18 bankruptcy court explained, the pretrial conference would have 19 been delayed by roughly four to six weeks, so the bankruptcy 20 court determined that this amount of delay implicated the 21 public’s interest in expeditious litigation resolution only in a 22 minor way. 23 While we admit to having some doubt that the noncompliant 24 conduct at issue herein would have had any impact on the timing 25 of the ultimate resolution of Olomi’s action, the Ninth Circuit 26 requires us to give significant deference to the bankruptcy 27 court’s assessment of whether the delay implicated the public 28 interest because the bankruptcy court is in the best position to
13 1 determine what amount of delay reasonably can be endured. In re 2 Eisen, 31 F.3d at 1451; Tenorio v. Osinga (In re Osinga), 91 B.R. 3 893, 895 (9th Cir. BAP 1988). 4 Based on this deference, and on the undisputed fact that 5 Olomi’s failure to file and serve the pretrial stipulation would 6 have delayed the pretrial conference by several weeks, we hold 7 that the bankruptcy court’s finding on the first Henderson factor 8 was not clearly erroneous. 9 2. The Court’s Need To Manage Its Docket 10 The bankruptcy court found that its need to manage its 11 docket militated strongly in favor of dismissal. The court noted 12 that material noncompliance with Local Rule 7016-1 was fairly 13 common notwithstanding the routine warnings the court gave at 14 status conferences and in scheduling orders regarding the 15 importance of the pretrial procedures. In essence, the court 16 reasoned that not issuing terminating sanctions when the litigant 17 completely failed to file or serve a pretrial stipulation would 18 encourage a relaxed and cavalier attitude towards the pretrial 19 stipulation requirement, which in turn would materially 20 contribute to additional congestion on the court’s already busy 21 docket. 22 Again, the Ninth Circuit has counseled that appellate courts 23 generally should defer to the bankruptcy court’s assessment of 24 what action is needed to facilitate the court’s management of its 25 own docket. In re Eisen, 31 F.3d at 1452; see also Yourish v. 26 Cal. Amplifier, 191 F.3d 983, 991 (9th Cir. 1999) (“Because the 27 district judge was in a superior position to evaluate the effects 28 of delay on her docket, . . . we find that this factor strongly
14 1 favors dismissal.”). Based on this deference and on the 2 indisputable delay in the pretrial proceedings, we hold that the 3 bankruptcy court’s finding on the second Henderson factor was not 4 clearly erroneous. 5 3. The Risk Of Prejudice To The Defendant 6 The bankruptcy court found that the four- to six-week delay 7 in the pretrial proceedings constituted a risk of prejudice to 8 Tukhi because the delay in pretrial proceedings might impede 9 Tukhi’s enjoyment of his fresh start. The court essentially 10 determined that the unreasonable delay caused by Olomi’s failure 11 to file and serve the pretrial stipulation created a risk of 12 interference with Tukhi’s ability quickly to go to trial and 13 thereafter enjoy the full benefit of his chapter 7 discharge. 14 Because the length of the delay was relatively minor, the 15 bankruptcy court concluded that this factor only lightly 16 militated in favor of dismissal. 17 We agree with the bankruptcy court to a point. We agree 18 that a significant delay in resolution of litigation caused by a 19 litigant’s unreasonable conduct can cause prejudice to the 20 adverse party under certain circumstances. See Malone v. United 21 States Postal Serv., 833 F.2d 128, 131 (9th Cir. 1987). This is 22 particularly true in bankruptcy cases, when the litigation 23 involves an exception to discharge claim, which clouds the 24 debtor’s fresh start by its mere existence. In re Osinga, 91 25 B.R. at 895; see also Tong v. Sandwell (In re Sandwell), 2005 WL 26 6960219, at *5 (Mem. Dec.) (9th Cir. BAP June 13, 2005). 27 However, the record here does not support the bankruptcy 28 court’s risk of prejudice finding. The contents of the joint
15 1 status report presented to the court at the time of the pretrial 2 hearing – and resubmitted to the court as part of Olomi’s papers 3 in support of his reconsideration motion – reflect that Tukhi was 4 advocating for a continuance of the pretrial conference until at 5 least January 2017 and for trial not to be set before February 6 2017. The status report further indicates that Tukhi’s 7 scheduling issues were being driven by the congestion of his 8 counsel’s trial calendar. When, as here, the debtor Tukhi was 9 advocating for even greater delay in the resolution of the 10 nondischargeability action, it is illogical to conclude that 11 Tukhi was at risk of being prejudiced by a brief delay resulting 12 from the plaintiff Olomi’s isolated incident of noncompliance 13 with pretrial procedures.3 14 We therefore hold that the bankruptcy court’s finding on the 15 third Henderson factor was clearly erroneous. 16 4. The Public Policy Favoring Disposition Of Cases On 17 Their Merits 18 The bankruptcy court conceded that this factor militated 19 against dismissal, but the court posited that the force of this 20 factor was attenuated because Olomi’s conduct was impeding the 21 progress of the case towards a merits resolution. The two 22 23 3 For purposes of prejudice, it also is worth noting that 24 Local Rule 7016-1(e)(2) prescribes procedures parties other than plaintiff must take when the plaintiff fails to comply with the 25 pretrial stipulation requirement. It is undisputed here that 26 Tukhi did not follow these procedures. If Tukhi had been concerned about potential prejudice arising from the delay caused 27 by Olomi’s failure to file and serve the pretrial stipulation, Tukhi could have helped to keep the matter on track by filing and 28 serving the declaration prescribed in Local Rule 7016-1(e)(2).
16 1 decisions on which the bankruptcy court relied for this point 2 involved severe obstacles to merits determinations caused by the 3 plaintiff’s noncompliant conduct over an extended period of time. 4 Allen v. Bayer Corp. (In re Phenylpropanolamine (PPA) Prod. Liab. 5 Litig.), 460 F.3d 1217, 1237 (9th Cir. 2006) (“failure to comply 6 with [case management order] obligations brought these MDL 7 actions to a standstill”); Alonzo v. City of L.A., No. CV 8 14–05636–RGK (Minute Order) (C.D. Cal. July 24, 2015) (“Plaintiff 9 failed to produce documents which are necessary for Defendant to 10 adequately litigate this case.”). Here, in contrast, Olomi’s 11 one-time act of neglect in failing to file and serve a pretrial 12 stipulation did not present anything close to the type of severe 13 impediment to litigation on the merits that was at issue in Allen 14 and Alonzo. Simply put, there was nothing in the record to 15 differentiate the case at bar from the majority of cases in which 16 this factor militates decidedly against dismissal. See, e.g. 17 Yourish, 191 F.3d at 992; Hernandez v. City of El Monte, 138 F.3d 18 393, 399 (9th Cir. 1998); Malone, 833 F.2d at 133 n.2; see also 19 Gonzalez v. Kitay (In re Kitay), 2015 WL 8550637 at *9 (Mem. 20 Dec.) (9th Cir. BAP Dec. 10, 2015) (“The fourth factor, whether 21 public policy favors disposition of the case on the merits, 22 normally weighs strongly against dismissal.”). 23 Thus, the bankruptcy court’s finding on the fourth Henderson 24 factor was clearly erroneous. The policy in favor of litigation 25 on the merits strongly militated against dismissal of Olomi’s 26 nondischargeability action, and the bankruptcy court’s finding 27 that this factor only weakly militated against dismissal was 28 illogical and not supported by the record.
17 1 5. Availability Of Less Drastic Sanctions 2 In its memorandum decision denying Olomi’s reconsideration 3 motion, the bankruptcy court elaborated on its reasoning why 4 alternative lesser sanctions were “unavailable.” The court 5 admitted that alternatives “are always available,” but it 6 considered such alternatives unwise, inappropriate and improper. 7 The bankruptcy court engaged in a slippery-slope type of analysis 8 in which it concluded that, if it imposed lesser, monetary 9 sanctions against Olomi, pretty soon all litigants would be free 10 to ignore the pretrial stipulation requirement, “knowing that the 11 worst that would happen to them is that they would be required to 12 pay a toll charge in the form of a monetary sanction for this 13 privilege.” Mem. Dec. (Nov. 10, 2016) at 8:13-15. 14 Aside from the logical fallacy evident in the court’s 15 reasoning, the court’s analysis incorrectly emphasized the 16 perceived systemic impact of a more lenient approach to 17 sanctions, instead of focusing on the potential of alternative 18 lesser sanctions to secure future compliance from Olomi. See In 19 re Singh, 2016 WL 770195 at *9-10 (rejecting a similar 20 alternative lesser sanctions analysis that emphasized systemic 21 concerns over what was needed on a case-specific basis to secure 22 litigant compliance). 23 Here, Olomi had no prior history of noncompliance. While 24 his efforts to ascertain and follow the court’s pretrial 25 procedures were clearly inadequate, there is nothing in the 26 record to indicate that a monetary/compensatory sanction would 27 have been insufficient to obtain his future compliance. 28 Consequently, the bankruptcy court’s finding on the fifth
18 1 Henderson factor was clearly erroneous.4 2 Additionally, the bankruptcy court’s emphasis on the 3 perceived systemic effect of a more lenient approach to sanctions 4 rendered its dismissal sanction wholly disproportionate to 5 Olomi’s one-time act of noncompliance. A dismissal sanction 6 cannot ever really satisfy the fifth Henderson factor without 7 some thought given to the proportionality of the sanction to the 8 misconduct. See In re Roessler-Lobert, ___ B.R. ___, 2017 WL 9 2189520, *10 & n.13 (noting that concept of proportionality is 10 largely subsumed within the fifth Henderson factor). 11 6. Results From Application Of The Henderson Factors 12 Only the first two of the five Henderson factors militated 13 in favor of dismissal. There was no demonstration of a genuine 14 risk of prejudice to Tukhi, nor were effective alternative lesser 15 sanctions shown to be unavailable. Furthermore, the policy 16 favoring decisions on the merits strongly militated against 17 dismissal. 18 At bottom, the bankruptcy court appears to have given 19 inordinate weight to its concern over its overcrowded docket and 20 the systemic effect a more lenient sanctions policy might have on 21 4 Sometimes, a prior warning that noncompliance will result 22 in dismissal can serve as a substitute to consideration of 23 alternative lesser sanctions. Yourish, 191 F.3d at 992; see also Pagtalunan v. Galaza, 291 F.3d 639, 643 (9th Cir. 2002). This 24 substitution theory apparently is based on the notion that the threat of dismissal is, itself, a form of alternative lesser 25 sanction, and if that does not secure compliance, the trial court 26 has discharged its duty to consider alternative lesser sanctions. Pagtalunan, 291 F.3d at 643. But this substitute to considering 27 alternative lesser sanctions typically applies only when the dismissal warnings were made in response to prior noncompliance. 28 Id.; Yourish, 191 F.3d at 992.
19 1 its ability quickly and efficiently to move cases on its docket 2 towards resolution. We sympathize with the bankruptcy court’s 3 palpable frustration with litigants who do not pay adequate 4 attention to court procedures and the very real impact their 5 inattention has on the court’s ability expeditiously to 6 administer justice. Even so, that sympathy does not permit us to 7 gloss over the established legal standards for imposing 8 terminating sanctions on plaintiffs. 9 In sum, the bankruptcy court abused its discretion in 10 dismissing Olomi’s nondischargeability action based either on his 11 violation of Local Rule 7016-1(b) and (c) or on his delay in 12 prosecution of the adversary proceeding. 13 CONCLUSION 14 For the reasons set forth above, the bankruptcy court’s 15 judgment dismissing Olomi’s adversary proceeding is VACATED, and 16 this matter is REMANDED for completion of pretrial proceedings 17 and the setting of a trial date. 18 19 20 21 22 23 24 25 26 27 28