In re: Marcelo Britto Gomez

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: March 25, 2014
• Docket: CC-13-1282-TaKuPa
• Status: Unpublished

Opinion

FILED Mar 25 2014 1 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-13-1282-TaKuPa ) 6 MARCELO BRITTO GOMEZ, ) Bk. No. 11-26905-TD 7 ) Debtor. ) Adv. No. 11-02360-TD 8 ______________________________) ) 9 CARTER STEPHENS, ) ) 10 Appellant, ) ) 11 v. ) MEMORANDUM* ) 12 MARCELO BRITTO GOMEZ; UNITED ) STATES TRUSTEE,** ) 13 ) Appellees. ) 14 ) 15 Argued and Submitted on February 20, 2014 at Pasadena, California 16 Filed - March 25, 2014 17 Appeal from the United States Bankruptcy Court 18 for the Central District of California 19 Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding 20 Appearances: Appellant Carter Stephens, pro se; Douglas Crowder 21 of Crowder Law Center for appellee Marcelo Brito Gomez. 22 23 Before: TAYLOR, PAPPAS, and KURTZ, Bankruptcy Judges.

24 * This disposition is not appropriate for publication. 25 Although it may be cited for whatever persuasive value it may 26 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 27 ** The United States Trustee did not file a brief, appear at 28 argument, or otherwise participate in this appeal.

1 1 Carter Stephens sought reconsideration of the bankruptcy 2 court’s dismissal of his adversary proceeding against Debtor 3 Marcelo Britto Gomez for failure to prosecute. The bankruptcy 4 court denied the motion; Stephens appealed. This Panel vacated 5 the order denying relief and remanded to the bankruptcy court for 6 findings of fact and conclusions of law. See Stephens v. Smith 7 (In re Gomez), 2012 WL 5938722 (9th Cir. BAP Nov. 28, 2012). On 8 remand, the bankruptcy court supported its decision with a 9 nine-page memorandum decision, from which Stephens now appeals. 10 We AFFIRM. 11 FACTS1 12 Stephens retained attorney Lori Smith to represent him in 13 litigation against the Debtor. After the Debtor filed a 14 chapter 72 case, Smith – on Stephens' behalf – filed a 15 § 523(a)(2)(A) and (a)(6) nondischargeability complaint. After 16 filing the adversary complaint, however, Smith's activity in the 17 case was, at best, sporadic. 18 Pursuant to LBR 7016-1(a),3 the bankruptcy court scheduled 19 1 20 Many of the relevant background facts are detailed in the memorandum decision in the first BAP appeal. See In re Gomez, 21 2012 WL 5938722, at *1-3. 22 2 Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. 23 All “Bankruptcy Rule” references are to the Federal Rules of 24 Bankruptcy Procedure, all “Civil Rule” references are to the Federal Rules of Civil Procedure, and all “LBR” references are to 25 the Local Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California. 26 3 27 LBR 7016-1(a) and (a)(2) provide that the bankruptcy clerk issues a summons and notice of the status conference and that the 28 (continued...)

2 1 an initial status conference for September 1, 2011.4 The Debtor 2 filed an LBR 7016-1 status report prior to hearing; Stephens 3 filed nothing. Similarly, the Debtor and his counsel appeared at 4 the status conference; Smith did not. Neither Smith nor anyone 5 from Smith's office explained her non-attendance to the 6 bankruptcy court (or to Stephens, for that matter). The 7 bankruptcy court continued the status conference to the end of 8 the month. 9 After the bankruptcy court continued the hearing, it learned 10 that Stephens was present. At that time, it explained to 11 Stephens that Smith failed to appear and also failed to file a 12 required pre-hearing status report. Further, it disclosed to 13 Stephens that the Debtor's status report mentioned a possible 14 settlement, which allegedly failed based on Stephens’ change of 15 mind. Stephens expressed surprise at this news and indicated 16 that he was unaware of any settlement discussions. 17 He then inquired whether he, in fact, was represented by 18 Smith. In response, the bankruptcy court stated: 19 Well, you have a couple options. You can fire Ms. Smith and hire another lawyer or you can fire 20 Ms. Smith and represent yourself. One way or the other, you have to do something to move this case ahead 21 from your stand point, and one way or another Ms. Smith has some obligations. I would suggest you start by 22 talking to Ms. Smith. If that's a dead end, then why 23 3 24 (...continued) parties are required to file a joint status report at least 25 14 days prior to each scheduled conference. 26 4 We exercise our discretion to take judicial notice of 27 documents electronically filed in the adversary proceeding. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 28 227, 233 n.9 (9th Cir. BAP 2003).

3 1 don't you [pick] up the phone and call [Debtor’s counsel] and see what you can work out. 2 3 Hr’g Tr. (Sept. 1, 2011) at 10:10-17. 4 Stephens advised that he had called Smith multiple times, to no 5 avail, and that he did not trust Smith. The bankruptcy court 6 emphasized that Stephens was obligated as the plaintiff to file a 7 status report as required by the local bankruptcy rules, 8 irrespective of Smith’s deficient representation. 9 Smith filed a status report two weeks after the initial 10 status conference. Both Smith and Stephens appeared at the 11 continued status conference. The bankruptcy court apparently5 12 reemphasized the obligations of the parties in the adversary 13 proceeding; it also set a discovery cutoff deadline and ordered 14 Smith to lodge a proposed scheduling order. Smith, in turn, 15 represented that the parties sought mediation and that a proposed 16 mediation order would be filed. Notwithstanding the bankruptcy 17 court’s orders and Smith’s representations, Smith filed nothing. 18 Sometime during this time frame, however, Stephens filed a 19 complaint against Smith with the State Bar of California. 20 In anticipation of a continued status conference in February 21 of 2012, Debtor's counsel filed another LBR 7016-1 status report; 22 it was submitted as a unilateral status report.6 Neither Smith 23 5 24 A transcript of the September 29, 2011 hearing was not included in the record on appeal and does not otherwise exist on 25 the adversary proceeding docket. 26 6 LBR 7016-1(a)(3) provides that if a party fails to 27 cooperate in preparing a joint status report and an answer has been filed, the parties must each submit a unilateral status 28 (continued...)

4 1 nor Stephens filed a status report. 2 The Debtor next moved to dismiss the adversary proceeding 3 with prejudice pursuant to LBR 7041-1 and Civil Rule 41(b). 4 Among other things, he argued that Stephens' failure to comply 5 with either the discovery deadline or LBR 7016-1 warranted 6 dismissal. The motion to dismiss was scheduled for mid-February. 7 Neither Smith nor Stephens opposed the motion. 8 At the February status conference, the discussion focused on 9 the disintegration of the attorney-client relationship between 10 Stephens and Smith. After hearing from both Stephens and Smith, 11 the bankruptcy court orally dismissed the adversary proceeding 12 based on lack of diligent prosecution. An order confirming the 13 dismissal was entered shortly thereafter. 14 Acting pro se, Stephens moved for reconsideration of the 15 dismissal order. He did not obtain a hearing date and did not 16 properly notice or serve the motion. Two days later, the 17 bankruptcy court denied the reconsideration motion by writing 18 “motion denied” on its face. Stephens appealed the denial to 19 this Panel. 20 A BAP panel vacated the order denying reconsideration and 21 remanded to the bankruptcy court for findings of fact and 22 conclusions of law. On remand, the bankruptcy court prepared a 23 memorandum decision and supported its decision to deny relief 24 from the dismissal order based on both procedural deficiencies 25 and substantive legal grounds. Stephens timely appealed. 26 27 6 (...continued) 28 report at least seven days before the scheduled conference.

5 1 JURISDICTION 2 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 3 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 4 § 158. 5 ISSUE 6 Whether the bankruptcy court abused its discretion by 7 denying the reconsideration motion? 8 STANDARD OF REVIEW 9 We review the bankruptcy court’s denial of a motion for 10 reconsideration for an abuse of discretion. Tracht Gut, LLC v. 11 Cnty. of L.A. Treasurer & Tax Collector (In re Tracht Gut, LLC), 12 503 B.R. 804, 809 (9th Cir. BAP 2014). 13 Review of an abuse of discretion determination involves a 14 two-prong test; first, we determine de novo whether the 15 bankruptcy court identified the correct legal rule for 16 application. See United States v. Hinkson, 585 F.3d 1247, 17 1261-62 (9th Cir. 2009) (en banc). If not, then the bankruptcy 18 court necessarily abused its discretion. See id. at 1262. 19 Otherwise, we next review whether the bankruptcy court's 20 application of the correct legal rule was clearly erroneous; we 21 will affirm unless its findings were illogical, implausible, or 22 without support in inferences that may be drawn from the facts in 23 the record. See id. (internal quotation marks omitted). 24 DISCUSSION 25 A. The bankruptcy court did not abuse its discretion in denying 26 reconsideration under Civil Rule 60(b) based on procedural 27 deficiencies. 28 The bankruptcy court first denied reconsideration based on

6 1 serious procedural defects, including failure to properly serve 2 and notice the motion and a failure to set it for hearing. Memo 3 Dec. at 2-3. Stephens failed to comply with several Bankruptcy 4 Rules and several local bankruptcy rules. On appeal, he attempts 5 to explain his service errors, but his exhibits show service 6 attempts, as evidenced by postal information on the face of the 7 envelopes, only after he filed the reconsideration motion. 8 Stephens fails to even discuss the other procedural defects 9 identified by the bankruptcy court. 10 It is within the bankruptcy court’s discretion to enforce 11 the Bankruptcy Rules and local bankruptcy rules. See Price v. 12 Lehtinen (In re Lehtinen), 332 B.R. 404, 412-14 (9th Cir. BAP 13 2005), aff’d, 564 F.3d 1052 (9th Cir. 2009); see also Weil v. 14 Neary, 278 U.S. 160, 169 (1929) (local rules have the force of 15 law) (citations omitted). Under LBR 9013-1(h), the bankruptcy 16 court was entitled to deem Stephens’ noncompliance to be a 17 consent to the denial of the reconsideration motion. The 18 bankruptcy court, thus, did not abuse its discretion in denying 19 reconsideration based on Stephens’ failure to comply with the 20 local bankruptcy rules and Bankruptcy Rules. 21 B. The bankruptcy court did not abuse its discretion in denying 22 reconsideration under Civil Rule 60(b) on substantive legal 23 grounds. 24 The reconsideration motion did not identify the particular 25 legal rule under which it sought relief. On remand, however, the 26 bankruptcy court applied Civil Rule 60(b) (incorporated into 27 adversary proceedings by Bankruptcy Rule 9024). This was not 28

7 1 erroneous.7 In particular, it referenced the relevant language 2 of Civil Rule 60(b)(1), (b)(2), (b)(3), and (b)(6) in its 3 memorandum decision. 4 Careful review of Stephens’ appellate brief as well as the 5 record below, however, reveals that his arguments rest only on 6 Civil Rule 60(b)(6) and, if liberally construed,8 the purported 7 existence of “new evidence” under Civil Rule 60(b)(2). Thus, we 8 do not consider Civil Rule 60(b)(1) and (b)(3) in this appeal; 9 Stephens did not raise theories for reconsideration thereunder 10 either below or on appeal. 11 1. There was no error in denying relief from the dismissal 12 order under Civil Rule 60(b)(6). 13 Civil Rule 60(b)(6) provides for relief from a judgment or 14 order based on "any other reason that justifies relief." This 15 provision serves as an equitable remedy, should be applied 16 sparingly, and is limited to “extraordinary circumstances [that] 17 prevented a party from taking timely action to prevent or correct 18 an erroneous judgment.” Zurich Am. Ins. Co. v. Int'l Fibercom, 19 Inc. (In re Int'l Fibercom, Inc.), 503 F.3d 933, 941 (9th Cir. 20 2007) (citation omitted). As a result, the movant “must 21 demonstrate both injury and circumstances beyond his control that 22 prevented him from proceeding with . . . the action in a proper 23 24 7 Where a party moves for reconsideration after the time for 25 appeal has passed, the motion is construed as a motion for relief from judgment under Civil Rule 60(b). 26 8 27 We liberally construe a pro se’s brief and documents filed. See Nilsen v. Neilson (In re Cedar Funding, Inc.), 28 419 B.R. 807, 816 (9th Cir. BAP 2009).

8 1 fashion.” Id. (citation omitted). 2 The Ninth Circuit has held that “an attorney's gross 3 negligence [may] constitute[] an extraordinary circumstance 4 warranting relief from a judgment dismissing the case for failure 5 to prosecute under [Civil] Rule 41(b).” Lal v. Cal., 610 F.3d 6 518, 521 (9th Cir. 2010); see also Cmty. Dental Serv. v Tani, 7 282 F.3d 1164, 1169 (9th Cir. 2002). An attorney’s gross 8 negligence, thus, may insulate a client from responsibility for 9 the attorney’s actions. See Lal, 610 F.3d at 524 (gross 10 negligence creates an exception to the principle that “[a]n 11 attorney's actions are typically chargeable to his or her 12 client”); Tani, 282 F.3d at 1171 (an attorney's gross negligence 13 “vitiat[es] the agency relationship that underlies our general 14 policy of attributing to the client the acts of his attorney.”). 15 An attorney’s gross negligence, however, only provides an 16 excuse for a failure to properly prosecute a case to an unknowing 17 client. See Tani, 282 F.3d at 1169 (“[C]ourts have concluded 18 that an unknowing client should not be held liable . . . [for] an 19 attorney's grossly negligent conduct, and that in such cases 20 sanctions should be imposed on the lawyer, rather than on the 21 faultless client.”) (emphasis added). In Lal, for example, the 22 appellant-plaintiff did not know about problems in the 23 prosecution of her lawsuit until approximately eight months after 24 dismissal of the case. 610 F.3d at 522. During those eight 25 months, plaintiff’s attorney fabricated status updates and 26 falsely advised that he was properly handling the case. Id. 27 Similarly, in Tani, the appellant-defendant did not know that his 28 attorneys failed to answer the complaint, to participate in a

9 1 court-ordered settlement, or to oppose the plaintiff’s motion for 2 a default judgment until the defendant received the entered 3 default judgment by mail. 282 F.3d at 1167. As in Lal, the 4 defendant’s attorneys provided falsified status updates alleging 5 productive progress in the litigation. Id. Thus, in these 6 cases, the clients were ignorant of the true status of their 7 litigation and the deficient conduct of their counsel until well 8 after case dismissal or adverse judgment. 9 Here, the bankruptcy court found that Smith had been 10 “largely derelict” throughout the adversary proceeding and that 11 Stephens was partly responsible for Smith's inaction. Memo Dec. 12 at 4, 9. Its determination was based on the fact that Stephens 13 was aware of Smith's deficient representation, was warned of his 14 personal responsibility for advancing the litigation and 15 complying with court orders, and, thus, had a full and fair 16 opportunity to avoid the consequences of a failure to properly 17 prosecute his case. 18 Stephens knew about Smith’s failure to properly prosecute 19 his case as early as the initial status conference. He expressly 20 stated at that time that he did not trust Smith. He also learned 21 of Smith’s involvement in settlement discussions with the Debtor 22 and his counsel – discussions apparently not disclosed to him. 23 These instances were each and in concert red flags as to the 24 problems with Smith’s representation. 25 At the initial status conference the bankruptcy court 26 further warned Stephens that even though Smith represented him, 27 he, as the plaintiff, was responsible for complying with the 28 local bankruptcy rules. Stephens also attended the continued status conference at the end of September 2011; he, thus, was

10 1 aware of the discovery cutoff deadline and the bankruptcy court’s 2 orders regarding the proposed scheduling order and proposed 3 mediation order. 4 Contrary to Stephens’ claims at oral argument, the facts in 5 this case do not match the most relevant facts in Lal or Tani. 6 There is no indication that either Lal or Tani attended hearings 7 or was otherwise placed on notice that either could not rely on 8 their attorney’s alleged actions and representations before case 9 dismissal or default judgment. In other words, Lal and Tani 10 learned of their attorneys’ misdeeds long after the adverse 11 outcomes in their cases. Stephens, on the other hand, was 12 completely and continuously aware of Smith’s errors months before 13 the adversary proceeding dismissal. 14 While there is some indication that Stephens sought to 15 retain other counsel, he ultimately failed to do so; and he 16 elected not to proceed pro se. He also suggests that during this 17 time period he received some assurance from Smith that she was 18 protecting his position. But, given Stephens’ continuous 19 knowledge of Smith’s consistent dereliction of duty, there is no 20 justification for deviating from the general rule that the client 21 is bound by the action or inaction of his attorney. The 22 bankruptcy court did not err in holding Stephens’ responsible for 23 Smith’s actions and inaction and, thus, it did not abuse its 24 discretion in denying relief under Civil Rule 60(b)(6).9 The 25 26 9 To be clear, we do not condone Smith's actions, and we 27 take no position as to Stephens' right to claim damages or to otherwise seek relief as a result of her failures to 28 appropriately represent him.

11 1 dismissal here correctly balanced the right of the Debtor to 2 prompt resolution of the adversary proceeding against Stephens' 3 right to prosecute the case. 4 2. There was no error in denying relief from the dismissal 5 order under Civil Rule 60(b)(2). 6 Civil Rule 60(b)(2) provides relief from a judgment or order 7 based on "newly discovered evidence that, with reasonable 8 diligence, could not have been discovered in time to move for a 9 new trial under Civil Rule 59(b).” In general, the evidence must 10 have existed at the time that the judgment or order was entered. 11 See Fantasyland Video, Inc. v. Cnty. of San Diego, 505 F.3d 996, 12 1005 (9th Cir. 2007); see also Jones v. Aero/Chem Corp., 921 F.2d 13 875, 878 (9th Cir. 1990) (relief under Civil Rule 60(b)(2) 14 requires that "the evidence (1) existed at the time of the trial, 15 (2) could not have been discovered through due diligence, and 16 (3) was of such magnitude that production of it earlier would 17 have been likely to change the disposition of the case.") 18 (citation and quotation marks omitted). In other words, the 19 evidence must be “newly discovered” by the movant rather than 20 simply “new.” 21 We interpret Stephens’ argument on appeal as being based on 22 the fact that a declaration from Smith dated June 11, 2012; his 23 own declaration; and other disciplinary documents from the State 24 Bar of California relating to his state bar complaint against 25 Smith constitute newly discovered evidence of Smith’s gross 26 negligence. 27 None of these documents were before the bankruptcy court at 28 the time that it denied the reconsideration motion. The record

12 1 shows that Stephens filed both the declarations and the state bar 2 documents in the adversary proceeding on July 20, 2012 – months 3 after the bankruptcy court denied the reconsideration motion. We 4 do not consider any documents that were not presented to the 5 bankruptcy court in the first instance.10 6 The only document attached to the reconsideration motion was 7 a two-page copy of Smith’s attorney record from the state bar’s 8 website. Stephens, however, never explains – either below or on 9 appeal – why he could not or did not discover this document 10 sooner and, more importantly, how this document would have aided 11 him in avoiding dismissal. 12 Included in Stephens’ appellate excerpts of record are other 13 state bar disciplinary documents that pre-date entry of the 14 orders dismissing the adversary proceeding and denying 15 reconsideration. Stephens fails to advance any argument as to 16 why he could not obtain these documents, many of which are 17 publicly available on the state bar website, previously. And, 18 again, he fails to explain how the introduction of these 19 documents would have changed the outcome in his adversary 20 proceeding. 21 In sum, none of the documents provided by Stephens support 22 Civil Rule 60(b)(2) relief. As a result, the bankruptcy court 23 did not abuse its discretion in denying reconsideration 24 thereunder. 25 26 10 In any event, the pertinent state court documents were 27 apparently entered by the state bar sometime in June of 2012 – once again, several months after the bankruptcy court dismissed 28 the adversary proceeding and denied reconsideration.

13 1 CONCLUSION 2 For the reasons discussed, we AFFIRM the bankruptcy court’s 3 decision denying relief from the order dismissing the adversary 4 proceeding. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28