In re: Randall Bessler and Denise Bessler

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: November 1, 2016
• Docket: NV-15-1427-LDoKi
• Status: Unpublished

Opinion

FILED NOV 01 2016 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 OF THE NINTH CIRCUIT 5 In re: ) BAP No. NV-15-1427-LDoKi ) 6 RANDALL BESSLER and ) Bk. No. 14-51963-btb DENISE BESSLER, ) 7 ) Adv. Pro. No. 15-05014-btb Debtors. ) 8 ) ) 9 RALPH G. MERRILL, ) ) 10 Appellant, ) ) 11 v. ) M E M O R A N D U M* ) 12 RANDALL M. BESSLER, ) ) 13 Appellee. ) ) 14 Submitted Without Oral Argument 15 on October 21, 2016 16 Filed - November 1, 2106 17 Appeal from the United States Bankruptcy Court for the District of Nevada 18 Honorable Bruce T. Beesley, Chief Bankruptcy Judge, Presiding 19 ________________________ 20 Appearances: Appellant Ralph G. Merrill, pro se on brief; Appellee Randall M. Bessler, pro se on brief 21 ________________________ 22 Before: LAFFERTY, DORE,** and KIRSCHER, Bankruptcy Judges. 23 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 8024-1. 27 ** Hon. Timothy W. Dore, United States Bankruptcy Judge for 28 the Western District of Washington, sitting by designation. 1 I. INTRODUCTION 2 The bankruptcy court dismissed Appellant-Plaintiff Ralph 3 Merrill’s adversary proceeding for failure to prosecute after 4 Merrill failed to appear at a continued status conference. On 5 appeal, Merrill, who is pro se, argues that he misunderstood the 6 court’s instructions regarding the timing of the status 7 conference relative to a yet-to-be scheduled settlement 8 conference. 9 Because the record1 reveals no basis for a finding of 10 unreasonable delay or prejudice to defendant, and no apparent 11 consideration of less drastic sanctions, we find that the 12 bankruptcy court abused its discretion in dismissing the 13 adversary proceeding. We therefore VACATE and REMAND. 14 II. FACTUAL BACKGROUND 15 On February 27, 2015, Appellant Ralph Merrill filed an 16 adversary complaint against Appellee-Debtor Randall Bessler. 17 Merrill alleged that Bessler was an antique firearms dealer, that 18 Merrill had consigned to Bessler several firearms, including a 19 rare .45 caliber German Luger pistol, and that Bessler had sold 20 the Luger and 40 other consigned firearms without Merrill’s 21 knowledge or authority and failed to turn over the proceeds. The 22 complaint purported to plead three claims: conversion, breach of 23 contract, and breach of fiduciary duty. Merrill alleged damages 24 25 1 Not all the documents referred to in this Memorandum were 26 included in the parties’ excerpts of record. To the extent necessary, we take judicial notice of pleadings filed by both 27 parties in the adversary proceeding. Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 28 2003).

-2- 1 of $763,000. In the prayer for relief, Merrill requested a 2 finding that the debt be found nondischargeable but did not 3 designate a specific subsection of § 523(a).2 4 Bessler filed an answer denying the allegations. 5 Thereafter, on May 14, 2015, Merrill filed a motion for summary 6 judgment and request for an order to show cause why Bessler 7 should not be held in contempt for making false statements to the 8 court. Merrill did not set the matter for a hearing. 9 The bankruptcy court set a scheduling conference for June 2, 10 2015. Merrill did not appear.3 On June 8, 2015, the bankruptcy 11 court issued an order to show cause why the adversary proceeding 12 should not be dismissed for failure to appear at the June 2 13 scheduling conference. The matter was set for hearing on 14 July 29, 2015. Merrill did not file a response to the order to 15 show cause, but he filed an application to appear by telephone at 16 the hearing. 17 On June 25, 2015, Bessler filed a motion to dismiss the 18 adversary proceeding and set it for hearing on the same date as 19 the continued scheduling conference. Merrill filed a motion to 20 21 2 Unless otherwise indicated, all chapter and section 22 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. “Rule” references are to the Federal Rules of Bankruptcy 23 Procedure, and “Civil Rule” references are to the Federal Rules of Civil Procedure. 24 3 It is not clear why Merrill failed to appear for the 25 June 2 scheduling conference. The Notice of Scheduling 26 Conference was included with the summons issued March 2, 2015. The bankruptcy court docket indicates that the summons was served 27 on Bessler via the Bankruptcy Noticing Center on March 4, 2015, but there is no record of service of the summons/notice on 28 Merrill.

-3- 1 strike the pleading and, as noted, an application to appear 2 telephonically at the July 29 hearing. 3 On July 21, 2015, the bankruptcy court issued an order 4 indicating that the July 29 hearing would be a status conference 5 regarding the pending motion for summary judgment and motion to 6 dismiss. The order setting the status conference indicated that 7 the parties could appear either in person or by telephone. 8 At the July 29, 2015 hearing, Merrill appeared 9 telephonically. The bankruptcy court informed the parties that 10 after reading their pleadings, it intended to send them to a 11 settlement conference. The court strongly encouraged Merrill to 12 settle, stating 13 I think it is highly unlikely from looking at this in the sort of not documented, confused state, various 14 conflicting representations. And I’m not suggesting that anyone is lying, but you have a long and 15 complicated relationship that had lots and lots and lots and lots of variables in it. And I will be 16 surprised if you can prove a dischargeability case. So I’m sending you to a settlement conference. 17 18 Hr’g Tr. (July 29, 2015) 5:8-17. 19 Merrill asked if he could respond, but the bankruptcy court 20 declined that request, informing Merrill that he could not 21 prosecute the adversary proceeding unless he appeared in person, 22 and that he should save his response for the settlement 23 conference.4 The bankruptcy court indicated that it would not 24 25 4 The bankruptcy court stated: 26 No. You are in my court, this is a status 27 conference. I wanted to tell you this. You asked to be allowed to appear. You are not allowed to prosecute 28 (continued...)

-4- 1 set a trial date until after a settlement conference had 2 occurred, and that the court would notify the parties of the date 3 set for the settlement conference and the name of the settlement 4 judge. The court then stated that the status conference would be 5 continued to December 2, 2015, but that if the case had settled 6 before then Merrill would not be required to appear. The court 7 then stated: “If you’re doing anything else, you do have to be 8 here.” Id. 7:15-16. 9 At the end of the hearing, Bessler informed the court that 10 Merrill was incarcerated and that he believed Merrill was being 11 released in March 2016.5 The court commented: “Okay. We'll set 12 the trial after that [if] we have to. . . . I don’t know that I 13 realized that.” Id. 9:6-7. 14 On August 6, 2015, the bankruptcy court issued a Notice of 15 Continued Status Hearing setting the status conference for 16 December 2, 2015. The notice contains a notation that “[t]he 17 court’s hearing calendar for the date scheduled by this Notice 18 4 19 (...continued) cases here if you are not here. So I’m not going to 20 hear you. I’m ordering you to a settlement conference. You can make your statements to the settlement judge. 21 Next time there is a hearing you need to be here. I 22 will not let you appear by telephone.

23 Hr’g Tr. 6:8-14. The record does not indicate the reason for the bankruptcy court’s apparent irritation with Merrill regarding his 24 telephonic appearance. As noted, the order setting the status conference explicitly permitted telephonic appearances. 25 5 26 In Merrill’s response to the motions panel’s order requiring him to file a complete copy of the transcript, Merrill 27 alleges that he had hung up the telephone before Bessler informed the court of Merrill’s incarceration. Merrill states that he was 28 released from prison on November 20, 2015.

-5- 1 may be viewed at www.nvb.uscourts.gov up to five days before the 2 scheduled hearing date to determine whether or not the hearing 3 has been kept on calendar.” 4 In late August and early September, Merrill and a deputy 5 clerk for the bankruptcy court exchanged emails regarding the 6 scheduling of the settlement conference. Merrill included those 7 emails in his excerpts of record, but the record does not reveal 8 whether the bankruptcy court ever saw or considered any of that 9 correspondence. On August 24, 2015, the clerk sent Merrill an 10 email informing Merrill of available dates for a settlement 11 conference of November 2, 3, or 4, 2015. The clerk requested 12 Merrill inform him which dates and times would suit his schedule 13 and stated that he was transmitting the same information to 14 Bessler, and that once the parties agreed on a date and time, a 15 scheduling order would be issued. On August 31, 2015, the clerk 16 sent a follow-up email asking for a response no later than 17 September 4, 2015. 18 On September 4, 2015, Merrill replied to the clerk’s email 19 as follows: 20 Thank you for your notice. I received a written notice from the Court a couple of weeks ago or so, informing 21 me of a settlement conference on the 2nd of December. Assuming that was pretty reliable, I scheduled my 22 travel plans to align with that date so that I would be in the region at that time, thus able to attend. I am 23 in Colorado at the present time, and would find it very difficult to change my current travel plans for the 2nd 24 of December. Is there any possibility that we can adhere to the original plan? That would help 25 considerably. 26 It appears to us from this email that Merrill was conflating 27 the settlement conference with the continued status conference. 28 Indeed, the clerk replied the same day, explaining to Merrill

-6- 1 that the settlement conference was separate from the December 2 2 status conference: 3 Reviewing the docket, I see that on 8/6 a notice was issued continuing the 7/29 status hearing(s) to Tues. 4 Dec. 2. In contrast to this, what I am attempting to coordinate is a separate settlement conference which 5 the Court ordered during the 7/29 hearings. My review of the record of the 7/29 hearing(s) indicates that the 6 Court will not bring the matter to trial until such a settlement conference takes place, so I wanted to give 7 you the opportunity for one of the November settings – since they are the very soonest available. . . . 8 9 (emphasis added). The clerk then informed Merrill that if the 10 November dates were not feasible, the clerk would advise Merrill 11 of future dates as they became available. 12 A few days later, Merrill sent a reply email to the clerk 13 stating that his return to the Utah/Nevada area would be 14 difficult to manage any sooner than December and requested a date 15 “around that time.” On September 10, 2015, the clerk responded 16 with “Fair enough, Mr. Merrill. Right now, it looks like the next 17 chance we’ll have for settlement conferences will be sometime in 18 the second quarter of 2016. I'll be back in contact then.” 19 The next item on the bankruptcy court’s docket is the Order 20 Dismissing Adversary Proceeding entered December 4, 2015. The 21 Order states: 22 At the prior hearing on July 29, 2015, the Plaintiff was ordered to be present at this hearing. 23 There was no appearance by Plaintiff, and no pleading filed or request for a continuance received. 24 Therefore, this matter is dismissed for lack of 25 prosecution. 26 No minute entry appears on the bankruptcy court docket to 27 indicate that a hearing was held or to otherwise explain the 28 court’s ruling.

-7- 1 Merrill timely appealed. 2 III. JURISDICTION 3 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 4 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 5 § 158. 6 IV. ISSUE 7 Did the bankruptcy court abuse its discretion in dismissing 8 the adversary proceeding for lack of prosecution? 9 V. STANDARD OF REVIEW 10 The bankruptcy court may sua sponte dismiss an adversary 11 proceeding for lack of prosecution under Civil Rule 41(b), 12 applicable in bankruptcy via Rule 7041. See Henderson v. Duncan, 13 779 F.2d 1421, 1423 (9th Cir. 1986); Abandonato v. Stuart 14 (In re Stuart), 88 B.R. 247, 249 (9th Cir. BAP 1988). We review 15 the bankruptcy court’s dismissal of an adversary proceeding based 16 upon a plaintiff’s failure to prosecute for abuse of discretion. 17 Moneymaker v. CoBEN (In re Eisen), 31 F.3d 1447, 1451 (9th Cir. 18 1994). Dismissal is a harsh penalty to be imposed only in 19 extreme circumstances. Henderson, 779 F.2d at 1423. 20 A bankruptcy court abuses its discretion if it applies the 21 wrong legal standard, misapplies the correct legal standard, or 22 if its factual findings are illogical, implausible, or without 23 support in inferences that may be drawn from the facts in the 24 record. See TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 25 820, 832 (9th Cir. 2011). To reverse for abuse of discretion, we 26 must have a definite and firm conviction that the bankruptcy 27 court committed a clear error of judgment in the conclusion it 28 reached upon a weighing of the relevant factors. In re Eisen,

-8- 1 31 F.3d at 1451. 2 VI. DISCUSSION 3 A. Factors to be considered in determining whether dismissal is appropriate 4 5 In determining whether to dismiss a case for lack of 6 prosecution, the bankruptcy court is to weigh the following 7 factors: (1) the public’s interest in expeditious resolution of 8 litigation; (2) the court’s need to manage its docket; (3) the 9 risk of prejudice to the defendants; (4) the public policy 10 favoring the disposition of cases on their merits; and (5) the 11 availability of less drastic sanctions. In re Eisen, 31 F.3d at 12 1451; Henderson, 779 F.2d at 1423; Tenorio v. Osinga 13 (In re Osinga), 91 B.R. 893, 894 (9th Cir. BAP 1988). No finding 14 of bad faith is required. Henderson, 779 F.2d at 1425. 15 A dismissal for lack of prosecution must be supported by a 16 showing of unreasonable delay. Nealey v. Transportacion Maritima 17 Mexicana, S.A., 662 F.2d 1275, 1280 (9th Cir. 1980). 18 Unreasonable delay creates a presumption of injury to the 19 defense. Ash v. Cvetkof, 739 F.2d 493, 496 (9th Cir. 1984). We 20 give deference to the bankruptcy court in reviewing whether 21 unreasonable delay existed, as the bankruptcy court is in the 22 best position to determine what period of delay can be endured 23 before its docket becomes unmanageable. In re Osinga, 91 B.R. at 24 895; In re Stuart, 88 B.R. at 249. Because of the countervailing 25 interest in disposing of cases on their merits, the pertinent 26 question is not simply whether there has been a delay but rather 27 whether there has been sufficient delay or prejudice to justify 28 dismissal of the plaintiff’s case. Nealey, 662 F.2d at 1280.

-9- 1 B. Application of the factors to the facts of this case 2 The bankruptcy court did not make explicit findings to 3 support the dismissal of the adversary proceeding, but such 4 findings are not required; we may independently review the record 5 to determine whether the bankruptcy court abused its discretion. 6 Ash, 739 F.2d at 496. 7 1. Unreasonable delay 8 It appears to us that the bankruptcy court dismissed the 9 case based on unreasonable delay. However, we find no basis for 10 such a finding. It is not clear that Merrill’s failure to appear 11 at the December 2 status conference resulted in any delay at all. 12 Rather, the delay was due to the rescheduling of the settlement 13 conference. Even though Merrill’s unavailability for the 14 November dates caused the delay in scheduling the settlement 15 conference, it appears that his unavailability was due to his 16 incarceration.6 17 To the extent the bankruptcy court also relied on Merrill’s 18 failure to appear at the original June 2 scheduling conference in 19 dismissing the case, it is not clear whether Merrill had notice 20 of the June 2 hearing; therefore, any such reliance was probably 21 misplaced. 22 2. Prejudice 23 Nothing in the appellate record or the bankruptcy court 24 docket reflects prejudice to Bessler resulting from Merrill’s 25 failure to appear at the December 2 status conference, beyond the 26 27 6 The bankruptcy court may well not have recalled Bessler’s 28 assertion that Merrill would be incarcerated until March 2016.

-10- 1 presumed inconvenience and possible expense of appearing at a 2 hearing that did not occur. Both parties were waiting for the 3 scheduling of the settlement conference, which would not have 4 occurred before April 2016. 5 3. The bankruptcy court did not consider less drastic 6 sanctions. 7 Dismissal is a harsh penalty that should be imposed only in 8 extreme circumstances. Henderson, 779 F.2d at 1423. Here, 9 dismissal was effectively with prejudice because any 10 nondischargeability action would be time-barred if refiled. 11 Thus, Merrill has lost the opportunity to have his claims heard 12 on the merits. Less drastic sanctions, such as a monetary 13 penalty, could have been imposed, but there is nothing in the 14 record to suggest that the bankruptcy court considered those. 15 4. Merrill’s failure to appear was based on his 16 misunderstanding of the court’s instructions. 17 Merrill argues in his brief that he believed that the 18 settlement conference was to occur before another status 19 conference would be held. Merrill contends in his opening brief 20 that he interpreted the court clerk’s communications to mean that 21 no status conference would be held until after the settlement 22 conference had occurred: 23 Merrill assumed that if the Settlement Conference was to be rescheduled, as the Clerk clearly inferred, then 24 the Status Conference that was going to follow it, would necessarily be rescheduled. Otherwise, the 25 “status” would not have changed for the scheduled December 2, 2015 Status Conference, rendering it moot. 26 Accordingly, Merrill cancelled his plans for travel and awaited further notification from the Clerk of Court 27 who had previously advised: “I'll be back in contact then.” 28

-11- 1 Thus, Merrill did not appear for the December 2 status conference 2 because he was awaiting an order setting the date for the 3 settlement conference. It does not appear that the bankruptcy 4 court was aware of this. 5 Bessler argues that Merrill “repeatedly” ignored the 6 bankruptcy court’s orders to personally appear at hearings on 7 June 2, 2015, July 29, 2015, and December 2, 2015. Bessler 8 states that “Merrill was told at the hearing on July 29th, 2015, 9 that if he did not appear at the next hearing on December 2nd, 10 2015, that his Adversary Complaint would be dismissed.” 11 These assertions are not completely accurate. First, 12 Merrill was not required to appear in person on July 29; the 13 order setting the status conference explicitly permitted the 14 parties to appear telephonically (by making arrangements with 15 Court Call one day before the hearing). Second, although the 16 bankruptcy court told Merrill that, barring settlement, Merrill 17 needed to personally appear at the continued status conference, 18 the court did not explicitly state that a failure to appear would 19 result in dismissal of the adversary proceeding. 20 Still, the bankruptcy court’s dismissal of the adversary 21 proceeding was not entirely baseless: Merrill failed to appear 22 at the initial scheduling conference on June 2, after which the 23 court issued an order to show cause; the court stated on the 24 record on July 29, 2015 that if the case had not settled, Merrill 25 had to personally appear at the December 2 status conference; and 26 the court clerk explained to Merrill that the settlement 27 conference and status conference were two different hearings. 28 Also, Merrill could have contacted the court to confirm whether

-12- 1 the December 2 status conference was going forward. 2 Notwithstanding the foregoing, as noted above, dismissal is 3 a harsh penalty to be imposed only in extreme circumstances. 4 Henderson, 779 F.2d at 1423. At an early point in the case, the 5 decision to terminate is subject to further scrutiny. Taylor v. 6 Singh (In re Singh), 2016 WL 770195, at *5 (9th Cir. BAP Feb. 26, 7 2016).7 And, “in the absence of less drastic alternative 8 sanctions and where there is no evidence of prejudice to the 9 defendant, dismissal of the plaintiff’s case is improper.” 10 In re Stuart, 88 B.R. at 250 (citing Raiford v. Pounds, 640 F.2d 11 944, 945 (9th Cir. 1981)). 12 VII. CONCLUSION 13 Under the totality of the circumstances presented in this 14 appeal, we find that the the public policy favoring the 15 disposition of cases on their merits was not outweighed by the 16 court’s need to manage its docket, the risk of prejudice to the 17 defendant, or the public’s interest in expeditious resolution of 18 litigation. Moreover, the bankruptcy court did not consider 19 20 7 In Singh, the bankruptcy court dismissed the adversary 21 proceeding at the first status conference for plaintiff’s counsel’s failure to file a status report as required by local 22 rule. Counsel did not file the status report because the parties 23 were in the process of preparing a stipulation and order to stay the proceedings pending the outcome of a § 727 action brought by 24 the United States Trustee. We reversed, finding that counsel’s noncompliance was minimal, and that the bankruptcy court erred in 25 finding risk of prejudice to the debtor where debtor was subject 26 to a denial of discharge proceeding as well as related adversary proceedings. We also found that the bankruptcy court erred in 27 its consideration of lesser sanctions, and that on balance, the need to manage the court’s docket did not outweigh the public 28 interest in having cases heard on their merits.

-13- 1 lesser sanctions. Thus, the bankruptcy court abused its 2 discretion in dismissing the adversary proceeding. 3 Therefore, we VACATE and REMAND for further proceedings in 4 accordance with this disposition. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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