FILED APR 7 2021 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: BAP No. CC-20-1009-GFS FRANK JOSEPH JAKUBAITIS, Debtor. Bk. No. 8:13-bk-10223-TA
FRANK JOPEPH JAKUBAITIS, Adv. No. 8:15-ap-01020-TA Appellant, v. MEMORANDUM1 JEFFREY IAN GOLDEN; RICHARD A. MARSHACK; CARLOS PADILLA, III, Appellees.
Appeal from the United States Bankruptcy Court for the Central District of California Theodor C. Albert, Bankruptcy Judge, Presiding
Before: GAN, FARIS, and SPRAKER, Bankruptcy Judges
INTRODUCTION
Chapter 72 debtor Frank Jakubaitis (“Debtor”) appeals the judgment
revoking his discharge under § 727(d). The bankruptcy court struck
1 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 2 Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil Procedure. 1 Debtor’s answer to the complaint as a sanction for his failure to respond to
the court’s order to show cause (the “Contempt OSC”), which required
Debtor to address his compliance with prior orders compelling discovery
and the status of prior monetary sanctions. After a prove-up hearing, the
bankruptcy court entered default judgment revoking Debtor’s discharge
but dismissed the second claim asserted against Debtor and Mrs. Jakubaitis
for turnover of assets under § 542 (the “Turnover Claim”).
Debtor then filed a motion under Civil Rule 60(b), made applicable
by Rule 9024, seeking to vacate the judgment. The court denied the motion
and Debtor appealed.
Debtor has not demonstrated an abuse of discretion by the
bankruptcy court. We AFFIRM.
FACTS 3
Debtor filed his chapter 7 petition in January 2013. His discharge was
entered, and his case was closed in January 2014. In 2015, the bankruptcy
court reopened the case to allow creditor Carlos Padilla, III to file an
adversary complaint, and the court reappointed Jeffrey Golden as trustee.
Mr. Padilla, Mr. Golden, and Richard Marshack, the trustee in Mrs.
3 We exercise our discretion to take judicial notice of documents electronically filed in Debtor’s main case and the adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). Debtor asks us to strike portions of Plaintiffs’ excerpts of record pertaining to Debtor’s deposition because those documents are part of the record in a separate appeal before the Ninth Circuit. We find no merit in Debtor’s argument and deny his motion to strike. 2 Jakubaitis’s chapter 7 case (together “Plaintiffs”), filed a complaint against
Debtor and Mrs. Jakubaitis seeking revocation of Debtor’s discharge and
turnover of various assets. Plaintiffs then moved to substantively
consolidate Debtor’s case with Mrs. Jakubaitis’s chapter 7 case,4 but the
court denied the motion.
Plaintiffs alleged that Debtor failed to disclose his ownership of
various assets and intentionally underreported his income to qualify for
chapter 7 relief.
A. Discovery Disputes And The Court’s Prior Orders
In August 2016, Plaintiffs filed a motion to compel Debtor to respond
to their request for production of documents pursuant to Civil Rule 37(a),
made applicable by Rule 7037. They sought bank records, tax returns, and
financial documents from Debtor and his various entities, including
WeCosign, Inc. After a hearing, the court ordered Debtor to produce the
documents within 30 days but declined to impose monetary sanctions at
that time.
In January 2017, Debtor failed to appear for his deposition. The
bankruptcy court granted Plaintiffs’ motion to compel Debtor’s attendance
but continued the hearing on the issue of monetary sanctions to permit
Debtor to file a protective order. Debtor filed a motion for a protective
4 Mrs. Jakubaitis filed a separate chapter 7 case in 2013 and received a discharge in 2014. After the bankruptcy court denied substantive consolidation, Mr. Marshack filed a separate adversary complaint in Mrs. Jakubaitis’s bankruptcy case against her and Debtor, seeking revocation of discharge and turnover of assets. 3 order, asserting in part that the effects of prescription medication made it
impossible for him to give meaningful and accurate deposition testimony.
At the hearing in May 2017, the court denied Debtor’s motion for a
protective order and entered monetary sanctions against Debtor in the
amount of $3,000. The court stated that if Debtor failed to comply with the
order compelling his deposition, “more severe sanctions, including striking
the answer, will be considered.”
In October 2017, Plaintiffs filed a second motion to compel and
asserted that Debtor appeared for his deposition but refused to answer
several questions, including questions about his mental capacity, which
Plaintiffs argued was pertinent to their case. Plaintiffs sought additional
sanctions of $4,830.
The bankruptcy court continued the hearing to January 2018 to allow
Debtor to file a second motion for protective order to be heard “well ahead
of the continued hearing.” Debtor filed his second motion for a protective
order one day before the continued hearing.
At the continued hearing, the bankruptcy court granted the motion to
compel but stated that the deposition could not be taken for 30 days to
allow Debtor’s motion for protective order to be heard. The court stated
that if the motion for protective order was not granted and Debtor
continued to refuse to testify, Plaintiffs were authorized to file a motion for
terminating sanctions.
4 After a hearing, the bankruptcy court denied Debtor’s second motion
for a protective order and ruled that Plaintiffs could ask questions about
Debtor’s diagnosis, his medications, and their purpose and side effects, but
ordered that Plaintiffs could not ask Debtor questions about specific
conversations with his psychotherapist. Debtor appealed that decision. We
affirmed in part and reversed in part. Jakubaitis v. Padilla (In re Jakubaitis),
604 B.R 562, 577 (9th Cir. BAP 2019).
B. The Contempt OSC And Terminating Sanctions
In February 2019, while the appeal of the order compelling Debtor’s
deposition was pending, Plaintiffs filed a motion for sanctions seeking to
hold Debtor in contempt for failing to comply with the October 2016 order
compelling production of documents. Plaintiffs noted that the court had
previously ordered Debtor to comply with discovery rules and imposed
monetary sanctions, but Debtor continued to ignore orders and had not
paid sanctions ordered by the court despite having monthly income of
approximately $10,000. Plaintiffs sought terminating sanctions against
Debtor, or alternatively, monetary sanctions in the amount of $1,950.
Debtor opposed the motion and argued that Plaintiffs failed to make
any showing of willfulness, bad faith, or substantial fault which is required
for terminating sanctions. Debtor stated that he complied with the court’s
order compelling production and served his responses on Plaintiffs. He
referred to “Respondent’s Exhibit C ‘Copies and proof of service’ dated
xx/xx/xxxx,” but he did not attach any exhibit to his opposition. He also
5 disputed Plaintiffs’ assertion that he had monthly income of $10,000 and
suggested that the court had already reviewed his income when it granted
two applications for fee waivers.
In March 2019, the bankruptcy court issued the Contempt OSC which
required responses from Debtor, Mrs. Jakubaitis, and Plaintiffs to several
specific issues raised by the court. The court ordered the parties to appear
at a hearing on May 2, 2019, and to support their responses with
appropriate declarations and evidence. The Contempt OSC specifically
stated that “[i]f inability to pay the sanctions is to be argued, it must be
supported in writing.” The Contempt OSC further stated, “[i]f the court is
not given satisfactory responses, sanctions including monetary sanctions or
striking of pleadings as terminating sanctions, may issue.” The parties
stipulated to continue the hearing to May 9, 2019.
Plaintiffs responded to the Contempt OSC by filing a declaration and
a request for judicial notice. Plaintiffs outlined the history of Debtor’s
failures to comply with court orders and cooperate in discovery in the
adversary proceeding and in related state court litigation. Plaintiffs stated
in their response that Debtor had yet to provide any evidence why he
should not be held in contempt. Debtor did not file any written response to
the Contempt OSC.
Prior to the hearing, the court issued a tentative decision which
indicated the court’s intent to strike Debtor’s answer based on his failure to
respond to the Contempt OSC. After the tentative decision was issued, and
6 one day before the hearing, Debtor filed an ex parte motion to continue the
hearing.
Debtor argued that the court was divested of jurisdiction to issue
terminating sanctions due to the pending appeal of the order compelling
his deposition. Debtor also stated in his motion to continue that “counsel
for [Debtor] due to the heavy press of other business, including bankruptcy
matter in Chapter 13 and in adversary cases in Santa Ana, in Riverside, and
Los Angeles, has had inadequate time to review and respond adequately.”
At the hearing, Debtor acknowledged that he had not paid the
monetary sanctions and said that he thought he sent the responses to the
production request. Plaintiffs argued that they had not received any
documents in response to the request for production and that Debtor failed
to respond to the Contempt OSC despite the court’s warning that such
failure would result in the court striking the answer.
The bankruptcy court adopted the tentative and struck Debtor’s
answer to the complaint. Although Mrs. Jakubaitis had been previously
dismissed from the case, an order had not been entered. But, because she
filed an answer to the complaint and failed to respond to the Contempt
OSC, the court also struck her answer.
Debtor filed a motion for reconsideration and argued that: (1) striking
Mrs. Jakubaitis’s answer was clear error because she was dismissed from
the case; (2) his failure to respond to the Contempt OSC was not willful or
in bad faith because Plaintiffs failed to comply with service requirements
7 for the motion and the Contempt OSC and thus, due process was not
satisfied; (3) the doctrines of laches and waiver barred Plaintiffs from
seeking sanctions based on the 2016 order compelling production; and
(4) the court made an implicit finding that Debtor was impecunious, and
therefore unable to pay the monetary sanctions, when it granted him leave
to proceed in forma pauperis in the pending appeal.
The bankruptcy court denied the motion for reconsideration. It held
that Debtor had sufficient notice of the Contempt OSC and the hearing, and
Debtor waived any technical service errors. The court noted that Debtor
offered no argument or evidence to demonstrate his inability to comply
with the court’s prior order compelling discovery. Finally, the court said
that Debtor failed to respond in writing as required by the Contempt OSC
and monetary sanctions had proven to be ineffective.
After striking the answer, the bankruptcy court directed that the case
would proceed to a “default prove-up,” and it permitted Debtor to file a
brief regarding the standard for a default judgment.
C. The Default Judgment And Debtor’s Civil Rule 60(b) Motions
After the court struck Debtor’s answer, Plaintiffs filed a motion for
default judgment. They sought revocation of Debtor’s discharge pursuant
to § 727(d) for false statements made under oath. In addition to the
allegations that Debtor underreported his income, Plaintiffs asserted that
Debtor made materially false declarations about the existence and value of
a loan Debtor made to WeCosign, Inc. Plaintiffs also sought judgment
8 against Debtor and Mrs. Jakubaitis for the value of the loan under § 542.
Plaintiffs requested to amend the complaint as necessary to conform to the
evidence.
Plaintiffs supported their motion for default judgment with a
declaration from their attorney, a request for judicial notice, a separate
statement of accounts, and a statement of undisputed facts. They submitted
evidence including financial records from WeCosign, Inc., which Plaintiffs
obtained from a court appointed receiver. Plaintiffs asserted that the
documents evidenced the existence and amount of the loan and indicated
that payments were made on the loan to Debtor and Mrs. Jakubaitis after
Debtor made sworn statements that the loan was forgiven and had no
value.
In response, Debtor provided an expert opinion that a financial
statement submitted by Plaintiffs to demonstrate the existence of the
WeCosign loan appeared to have been altered. Debtor also argued that
Plaintiffs failed to satisfy the procedural requirements for a default
judgment because they did not seek entry of a default prior to filing the
motion for default judgment. He also objected to other evidence submitted
by Plaintiffs and argued that Plaintiffs were seeking different relief in their
application than in their complaint.
The bankruptcy court issued its tentative ruling, indicating its intent
to enter judgment revoking Debtor’s discharge but to deny judgment on
the Turnover Claim because it did not find legal or evidentiary support for
9 a monetary judgment. At the hearing, Debtor argued that because the court
did not find that the monetary judgment was warranted, it should render
judgment in his favor on the Turnover Claim.
In September 2019, the bankruptcy court entered an order granting
the motion pursuant to the terms of the tentative ruling. It entered separate
findings of fact and conclusions of law, and the judgment revoking
Debtor’s discharge, on September 24, 2019. The findings of fact and
conclusions of law stated “[w]ith regard to matter of a turnover of assets to
the estate claim, that claim is dismissed without prejudice.”
On October 2, 2019, Debtor filed a motion to vacate the judgment
under Civil Rule 60(b). He argued that: (1) Plaintiffs committed fraud by
presenting altered evidence; (2) the judgment was void because Mr.
Marshack lacked standing and Debtor’s due process rights were violated
by the provisions in the order which permitted Plaintiffs to pursue Debtor
and Mrs. Jakubaitis on other claims; (3) Debtor’s failures to respond to the
order compelling production and the Contempt OSC were caused by his
attorney’s excusable neglect; (4) Plaintiffs’ failure to obtain entry of default
before seeking a default judgment constituted “extraordinary
circumstances” justifying relief under Civil Rule 60(b)(6); and (5) the
bankruptcy court was required to enter judgment in favor of Debtor on the
Turnover Claim.
Debtor filed an amended Civil Rule 60(b) motion on October 25, 2019.
The amended motion included minor changes but otherwise made the
10 same arguments for relief as the original motion. Plaintiffs opposed the
motion and argued that Debtor did not support the motion with any
declaration or other evidence and all the arguments made by Debtor were
previously raised in his motion for reconsideration and rejected by the
court.
On November 7, 2019, Debtor filed a notice of errata and an amended
Civil Rule 60(b) motion, which supplemented the motion with a
declaration of Debtor’s attorney. Plaintiffs filed another opposition and
reiterated that Debtor’s arguments and the declaration were merely a
rehash of prior arguments that the court had already rejected.
The bankruptcy court denied Debtor’s motion and Debtor timely
appealed.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(J). Plaintiffs argue that Debtor’s notice of appeal was untimely,
and we therefore lack jurisdiction. We have jurisdiction to determine our
own jurisdiction and do so de novo. Wilkins v. Menchaca (In re Wilkins), 587
B.R. 97, 100 (9th Cir. BAP 2018).
Under Rule 8002, “a notice of appeal must be filed with the
bankruptcy clerk within 14 days after the entry of the judgment, order, or
decree being appealed.” If a party files a Civil Rule 60(b) motion within 14
days of the judgment, the time to appeal runs “from the entry of the order
disposing of the last such remaining motion.” Rule 8002(b).
11 Plaintiffs argue that although Debtor filed his Civil Rule 60(b) motion
within 14 days of the judgment, Debtor effectively withdrew it when he
filed the amended motions. Plaintiffs do not cite any authority supporting
their contention that the amended motions operated to withdraw the
original motion. Debtor supplemented the original motion with a
declaration, but his basis for relief did not change. Debtor timely filed his
Civil Rule 60(b) motion which extended the time to appeal under Rule
8002(b). The bankruptcy court disposed of Debtor’s request for relief when
it denied the motion on December 30, 2019. Because the time to appeal runs
from the entry of the order disposing of Debtor’s motion, the appeal was
timely, and we have jurisdiction.
ISSUES
Did the bankruptcy court abuse its discretion by striking Debtor’s
answer?
Did the bankruptcy court abuse its discretion by entering the default
judgment against Debtor?
Did the bankruptcy court abuse its discretion by denying Debtor’s
Civil Rule 60(b) motion?
STANDARDS OF REVIEW
We review the bankruptcy court’s order striking Debtor’s answer as a
sanction and the court’s entry of default judgment for abuse of discretion.
Hester v. Vision Airlines, Inc., 687 F.3d 1162, 1169 (9th Cir. 2012); Eitel v.
McCool, 782 F.2d 1470, 1471 (9th Cir. 1986). “Absent a definite and firm
12 conviction that the [bankruptcy] court made a clear error in judgment, this
court will not overturn a [Civil] Rule 37 sanction.” Adriana Int’l Corp. v.
Thoeren, 913 F.2d 1406, 1408 (9th Cir. 1990).
We also review the bankruptcy court’s decision under Civil Rule
60(b) for abuse of discretion. United Student Funds, Inc. v. Wylie (In re Wylie),
349 B.R. 204, 208 (9th Cir. BAP 2006). A bankruptcy court abuses its
discretion if it applies an incorrect legal standard or its factual findings are
illogical, implausible, or without support in the record. TrafficSchool.com,
Inc. v. Edriver, Inc., 653 F.3d 820, 832 (9th Cir. 2011).
“Where the sanction results in default, the sanctioned party’s
violations must be due to the ‘willfulness, bad faith, or fault’ of the party.”
Jorgensen v. Cassiday, 320 F.3d 906, 912 (9th Cir. 2003) (quoting Hyde & Drath
v. Baker, 24 F.3d 1162, 1167 (9th Cir 1994)). We review the bankruptcy
court’s finding of willfulness, bad faith, or fault for clear error. Id. Factual
findings are clearly erroneous if they are illogical, implausible, or without
support in the record. Retz v. Samson (In re Retz), 606 F.3d 1189, 1196 (9th
Cir. 2010).
DISCUSSION
Debtor argues that the bankruptcy court erred by striking his answer
because the Contempt OSC was unrelated to the merits of the case and his
failure to respond was caused by his attorney’s excusable neglect. He
asserts that the court erred by entering the judgment without a separate
entry of default and argues that default judgment was not appropriate
13 because public policy favors resolution of cases on their merits, material
facts were in dispute, and evidence submitted by Plaintiffs was altered. He
also argues that the bankruptcy court was required to either grant
judgment in Debtor’s favor on the Turnover Claim or dismiss it with
prejudice. Finally, Debtor contends that the court erred by denying his
Civil Rule 60(b) motion.
A. The Bankruptcy Court Did Not Abuse Its Discretion By Striking Debtor’s Answer
Pursuant to Civil Rule 37(b)(2)(a), if a party “fails to obey an order to
provide or permit discovery . . . the court where the action is pending may
issue further just orders [including] . . . (iii) striking pleadings in whole or
in part.” The bankruptcy court also has inherent authority to control its
docket and “[i]n the exercise of that power [it] may impose sanctions
including, where appropriate, default or dismissal.” Thompson v. Hous.
Auth. of City of L.A., 782 F.2d 829, 830 (9th Cir. 1986).
1. Debtor’s Sanctionable Conduct Was The Result Of Willfulness, Bad Faith, or Fault
Before considering severe sanctions, such as striking an answer or
entering default judgment, the bankruptcy court must first determine that
the party’s sanctionable conduct is the result of “willfulness, bad faith, or
fault” of that party. Jorgensen, 320 F.3d at 912. In the context of sanctions,
“‘disobedient conduct not shown to be outside the control of the litigant’ is
all that is required to demonstrate willfulness, bad faith, or fault.” Henry v.
14 Gill Indus., Inc., 983 F.2d 943, 948 (9th Cir. 1993) (quoting Fjelstad v. Am.
Honda Motor Co., 762 F.2d 1334, 1341 (9th Cir. 1985)). Debtor argues that his
failure to respond to the Contempt OSC or the court’s order compelling
production of documents was not the result of his willfulness, bad faith, or
fault, but rather the excusable neglect of his attorney.
Debtor has not demonstrated that his attorney’s negligence was
excusable. Debtor’s attorney stated that his former paralegal misfiled the
production responses and he was unaware of the error. He also stated that
although he received the Contempt OSC, due to “staffing issues and other
bankruptcy and litigation related matters [he] did not see the order . . . or it
did not register to [him] that the entry was what it was.”
At least regarding the Contempt OSC, the record does not support
Debtor’s contention. His attorney received Plaintiffs’ response to the
Contempt OSC which indicated that Debtor had not provided any
evidence why he should not be held in contempt. And Debtor’s attorney
was sufficiently aware of the Contempt OSC to meet and confer with
Plaintiffs’ counsel and file a stipulated motion to continue the hearing to
May 9, 2019. Debtor’s counsel then filed an ex parte motion to continue the
May 9, 2019 hearing but made no mention of his failure to understand the
obligation to respond to the Contempt OSC. Instead, he stated that “due to
the heavy press of other business,” he had “inadequate time to review and
respond adequately.”
15 Debtor offered no explanation why he failed to either pay the
monetary sanctions ordered by the court or seek relief from that order, and
he has not shown that his failure to respond to the Contempt OSC was
outside of his control. The bankruptcy court did not clearly err in
determining that the sanctionable conduct was a result of Debtor’s
willfulness, bad faith, or fault.
2. Case-Dispositive Sanctions Were Appropriate
The Ninth Circuit has constructed a five-part test to determine
whether a case-dispositive sanction, such as striking an answer in full, is
just. 5 Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 482 F.3d 1091,
1096 (9th Cir. 2007). The test requires the bankruptcy court to consider:
“(1) the public’s interest in expeditious resolution of litigation; (2) the
court’s need to manage its dockets; (3) the risk of prejudice to the party
seeking sanctions; (4) the public policy favoring disposition of cases on
their merits; and (5) the availability of less drastic sanctions.” Id.
It is not necessary for the bankruptcy court to make explicit findings
regarding these factors and we review the record independently to
determine whether case-dispositive sanctions were an abuse of discretion.
Adriana Int’l Corp., 913 F.2d at 1412 (citing Malone v. U.S. Postal Serv., 833
F.2d 128, 130 (9th Cir. 1987)). We may affirm case-dispositive sanctions
5 We apply this five-factor test whether the bankruptcy court’s case-dispositive sanction is pursuant to Civil Rule 37(b) or its inherent authority. See Adriana Int’l Corp., 913 F.2d at 1412 n.4. 16 “where at least four factors support . . . or where at least three factors
strongly support [case-dispositive sanctions].” Dreith v. Nu Image, Inc., 648
F.3d 779, 788 (9th Cir. 2011) (quoting Yourish v. Cal. Amplifier, 191 F.3d 983,
990 (9th Cir. 1999)).
When a party violates a court order, the first two factors support
sanctions and the fourth factor weighs against a default. Adriana Int’l Corp.,
913 F.2d at 1412. Therefore, the third and fifth factors are decisive.
In determining the risk of prejudice, we consider whether the
Debtor’s actions impaired Plaintiffs’ ability to go to trial or threatened to
interfere with the rightful decision of the case. Id. We evaluate prejudice in
part with reference to Debtor’s excuse for failing to comply with the
Contempt OSC. Malone, 833 F.2d at 131. “Failure to produce documents as
ordered . . . is considered sufficient prejudice.” Adriana Int’l Corp., 913 F.2d
at 1412 (citing Sec. & Exch. Comm’n v. Seaboard Corp., 666 F.2d 414, 417 (9th
Cir. 1982)).
Here, Debtor’s repeated failures to comply with bankruptcy court
orders, including to produce documents and to respond to the Contempt
OSC, interfered with the rightful decision of the case. Debtor has offered no
cogent excuse for his failures to comply with court orders. The third factor
supports striking the answer.
The fifth factor requires the bankruptcy court to consider lesser
sanctions. Under this factor, we determine whether the bankruptcy court
“considered lesser sanctions, whether it tried them, and whether it warned
17 the recalcitrant party about the possibility of case-dispositive sanctions.”
Conn. Gen. Life Ins. Co., 482 F.3d at 1096. In egregious cases, where the
bankruptcy court imposes alternative sanctions before striking an answer,
“such an inquiry is not necessary.” Adriana Int’l Corp., 913 F.2d at 1413.
The bankruptcy court previously imposed monetary sanctions
against Debtor for his failures to comply with discovery orders. Debtor did
not pay those sanctions. The bankruptcy court considered further
monetary sanctions but had no reason to believe they would be effective.
The court warned Debtor numerous times that continued failures to
comply could result in case-dispositive sanctions. The fifth factor supports
case-dispositive sanctions.
Debtor argues that striking his answer was improper because the
Contempt OSC was unrelated to merits of the case. He suggests that the
bankruptcy court struck his answer as punishment for appealing the
court’s order denying a protective order and compelling his deposition.
The record is clear that the bankruptcy court struck Debtor’s answer
because he failed to respond to the Contempt OSC and failed to explain
why he had not complied with prior court orders. The bankruptcy court
repeatedly warned Debtor that continued noncompliance would result in
case-dispositive sanctions. But Debtor did not respond to the Contempt
OSC as ordered, did not produce the documents required by the order
compelling production, and did not pay the sanctions ordered by the court.
18 The court’s order striking Debtor’s answer was directly related to
Debtor’s continued discovery abuses which affected the merits of the case,
and the court also had inherent authority to strike Debtor’s answer for
failing to comply with court orders. The bankruptcy court did not abuse its
discretion by striking Debtor’s answer.
B. The Bankruptcy Court Did Not Abuse Its Discretion By Entering Default Judgment Revoking Debtor’s Discharge
1. Separate Entry of Default Was Not Required
Civil Rule 55(a) applies “[w]hen a party against whom a judgment
for affirmative relief is sought has failed to plead or otherwise defend . . .”
Debtor did not fail to plead or otherwise defend the case. It is true that
entry of a default is a prerequisite to a default judgment where a party has
not pleaded or otherwise defended the case, but “[Civil] Rule 55(a) does
not represent the only source of authority in the rules for the entry of a
default that may lead to judgment.” C. Wright & A. Miller, 10A Fed. Prac.
& Proc. Civ. § 2682 (4th ed. 2020).
Here, a separate entry of default serves no purpose. Debtor was
aware that the court struck his answer as a sanction and the case would
proceed by a default prove-up hearing. The order striking Debtor’s answer
operated the same as an entry of default and had the same effect. All well-
pleaded allegations in the complaint were admitted, all affirmative
defenses were struck, and Debtor’s liability was established. See Adriana
Int’l Corp., 913 F.2d at 1414 (citing Geddes v. United Fin. Grp., 559 F.2d 557,
19 560 (9th Cir. 1977)); Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561
F.3d 1298 (11th Cir. 2009) (“Because the answer and counterclaims were
struck, Appellants had defaulted.”). The court was not required to
separately enter default under Civil Rule 55(a).
2. Entry of Default Judgment Was Not an Abuse of Discretion
The bankruptcy court had broad discretion to grant default
judgment. Kubick v. FDIC (In re Kubick), 171 B.R. 658, 659 (9th Cir. BAP
1994). We will not disturb a default judgment if “(1) the defendant’s
culpable conduct led to the default; (2) the defendant has no meritorious
defense; or (3) the plaintiffs would be prejudiced if the judgment is set
aside.” Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir.
1988).
If the default judgment was entered because of Debtor’s culpable
conduct, “we need not consider whether a meritorious defense was shown,
or whether the plaintiff would suffer prejudice if the judgment were set
aside.” Id. (quotation marks and citations omitted). “[A] defendant’s
conduct is culpable if he has received actual or constructive notice of the
filing of the action and intentionally failed to answer.” TCI Grp. Life Ins.
Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001) (quoting Alan Newman
Prods., 862 F.2d at 1392), overruled on other grounds by Egelhoff v. Egelhoff ex
rel. Breiner, 532 U.S. 141 (2001).
The bankruptcy court necessarily determined that Debtor’s conduct
was culpable when it struck his answer. Debtor received notice of the
20 Contempt OSC and intentionally failed to answer. Although he contends
his failure to respond was attributable to his attorney’s excusable neglect,
that neglect was not excusable. Debtor also failed, without explanation, to
pay the monetary sanctions ordered by the court or to produce documents
required by the order compelling production.
Debtor also argues that the bankruptcy court erred by entering
default judgment because material facts were disputed, public policy
favors resolution on the merits, and the evidence submitted by Plaintiffs
was altered.
The policy favoring resolution on the merits is part of the five-factor
test which must be considered prior to entering case-dispositive sanctions.
As discussed above, this factor weighs against striking the answer, but it
does not overcome the remaining factors which support terminating
sanctions.
The existence of disputed facts is similarly unavailing. After the
bankruptcy court struck Debtor’s answer, all well-pleaded facts in the
complaint are taken as true, except as to damages. Adriana Int’l Corp., 913
F.2d at 1414; TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir.
1987).
And, although Debtor suggests that evidence had been altered, the
bankruptcy court did not need to rely on the evidence to enter judgment.
Plaintiffs’ allegations that Debtor made a false oath about his income were
21 admitted once the answer was struck and those allegations are sufficient to
revoke Debtor’s discharge without evidence related to the WeCosign loan.
The bankruptcy court did not clearly err in finding Debtor’s conduct
to be culpable and it did not abuse its discretion by entering default
judgment.
3. Debtor Was Not Entitled to Judgment on The Turnover Claim
Debtor contends that the bankruptcy court erred by not entering
judgment in his favor on the Turnover Claim. He does not cite any
authority for this proposition, but we have previously held:
While a trial court has great discretion in considering issues and evidence in a hearing pursuant to Rule 55(b)(2), we find no authority that would allow a trial court to enter judgment in favor of the defaulting party following such a hearing. To enter such a judgment against the non-defaulting party because of the failure of that party to sustain its burden of proof would make the hearing under Rule 55(b)(2) the same as a trial on the merits.
Valley Oak Credit Union v. Villegas (In re Villegas), 132 B.R. 742, 746-47 (9th
Cir. BAP 1991); but see All Points Capital Corp. v. Meyer (In re Meyer), 373 B.R.
84, 89 (9th Cir. BAP 2007) (“If the plaintiff is not entitled to the relief
requested, the court should not enter default judgment and may even enter
judgment in favor of the defaulted defendant.”) (citing Cashco Fin. Servs.,
Inc. v. McGee (In re McGee), 359 B.R. 764, 771–72 (9th Cir. BAP 2006); Wells
Fargo Bank v. Beltran (In re Beltran), 182 B.R. 820, 823–24 (9th Cir. BAP
1995)). 22 Even if the bankruptcy court had authority to enter judgment in
favor of Debtor on the Turnover Claim, it was not required to do so. All
defenses that Debtor may have against future claims are preserved by the
order dismissing the Turnover Claim.
C. The Bankruptcy Court Did Not Abuse Its Discretion By Denying Debtor’s Civil Rule 60(b) Motion
Debtor argues that the bankruptcy court should have vacated the
default judgment under Civil Rule 60(b)(1), (b)(3), and (b)(4). All of
Debtor’s arguments for relief were raised in his motion for reconsideration
of the order striking his answer, or in opposition to the motion for default
judgment. Debtor cannot use a Civil Rule 60(b) motion to reargue points
already made, or that could have been made, in dispute of the underlying
motion. Branam v. Crowder (In re Branam), 226 B.R. 45, 55 (9th Cir. BAP
1998), aff’d, 205 F.3d 1350 (9th Cir. 1999). We find no merit in Debtor’s
arguments for relief under Civil Rule 60(b).
CONCLUSION
Based on the foregoing, we AFFIRM the bankruptcy court’s order
striking Debtor’s answer and the default judgment revoking Debtor’s
discharge.