Blade Energy Pty Ltd. et al. v. Rodriguez (In re Rodriguez)
Blade Energy Pty Ltd. et al. v. Rodriguez (In re Rodriguez)—9th Cir. BAP 12/19/13. This is an “unpublished” decision. The United States Bankruptcy Appellate Panel of the Ninth Circuit (the "BAP") has affirmed a bankruptcy court’s (Bankruptcy Judge Scott Clarkson, Bankruptcy Court, CD CA) dismissal of an adversary proceeding as a discovery sanction for failure to comply with initial discovery rules and the court’s procedural rules.
Facts:
The plaintiffs and appellants (the "Appellants") in this case brought an action against appellee and debtor Jacqueline Rodriguez (the "Appellee" or "Ms. Rodriguez") seeking a determination that their claims against her were non-dischargeable in bankruptcy pursuant to 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), (a)(4), and (a)(6). As required by a local bankruptcy rule ("LBR"), Appellants served with the summons and complaint a copy of the bankruptcy court’s "Early Meeting of Counsel and Status Conference Instructions" ("Rule 26 Instructions"). The Rule 26 Instructions require, among other things: (1) compliance with LBR 7026-1, (2) a meet and confer at least 21 days before the status conference, and (3) the filing of a joint status conference statement if an answer has been filed, or the filing of a unilateral status conference statement if an answer has not been filed.
Instead of filing an answer, Ms. Rodriguez moved to dismiss. The Appellants filed a response to the motion but failed to respond to multiple correspondence and inquiries from Ms. Rodriguez’s counsel about setting the Federal Rule of Civil Procedure ("Federal Rule") 26 meeting. A limited telephonic meeting took place 18 days after the deadline for a meeting, and an untimely unilateral report was filed on the same day indicating that the required Federal Rule 26 meeting had finally occurred.
The bankruptcy court dismissed the action due to the failure to comply with the Rule 26 Instructions, as well the court’s civil and local rules in lieu of monetary sanctions that had previously proven ineffective in the case.
Reasoning:
In affirming the lower court’s dismissal, the BAP examined Federal Rule 16(a), applicable in adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7016, and LBR 7016-1. The BAP found it undisputed that the Appellants had failed to participate in a Federal Rule 26 meeting or timely file either a joint or unilateral status conference statement.
The BAP then explained that to overturn a dismissal ordered as a discovery sanction, the appellate court must "have a definite and firm conviction that it was clearly outside the acceptable range of sanctions," citing Malone v. U.S. Postal Service, 833 F.2d 128, 130 (9th Cir. 1987). The BAP enunciated the five factors a trial court must weigh before an action is dismissed as a sanction for lack of prosecution: "(1) the public’s interest in expeditious resolution of litigation; (2) the court’s need to manage its docket; (3) the risk of prejudice to the defendant; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions." Citing Malone, 833 F.2d at 130; and Thompson v. Hous. Auth., 782 F.2d 829, 832 (9th Cir.), cert. denied, 479 U.S. 829 (1986).
In upholding the selection of the sanction of dismissal over monetary sanctions, the BAP strongly supported Judge Clarkson’s issuance of a harsher penalty, finding that "[w]hen challenged by the bankruptcy court on his missteps [counsel ] had difficulty understanding, in effect, what all the fuss was about [and adding] [t]his lack of comprehension of the impact of dilatory practice on the operation of a trial court is exactly why a sanction stronger than a monetary sanction was warranted in this case."
Comment:
In upholding the dismissal of adversary proceedings for failure to comply with the weighty requirements of Federal Rule 26, the least of which are obligations to meet and confer and file status conference statements on a timely basis, it seems apparent that the BAP was supportive of an effort by Judge Clarkson to change "[t]he practice culture of the bar [appearing before the bankruptcy court that] appears to have relegated monetary sanctions for noncompliance with procedural rules to a cost of doing business."
Federal Rule 26 contains requirements for early initial disclosures "without awaiting a discovery request" supportive of a party’s claims. Absent a stipulation or court order to the contrary (often contained in a standard order setting dates and deadlines in a proceeding) or an objection during the Federal Rule 26(f) conference to the rule’s deadlines, litigants can be substantially prejudiced if their counsel is not alert to his or her obligations. Federal Rule 26(a)(3)(B) for example provides that all objections to the admissibility of materials identified under Federal Rule 26(a)(3)(A)(ii) not made within 14 days after disclosures are made are (with the exception of objections under Federal Rules of Evidence 402 and 403) waived unless the court orders otherwise. Practitioners are well advised to ascertain before filing an action the extent to which Federal Rule 26 is in force in any particular court, identify all dates set by local rule or practice, and avoid the untimely and incomplete compliance that bankruptcy courts, given ever dwindling judicial resources, are less and less likely to overlook.
The dismissal was a punishment bigger than the crime, and should have been viewed by the BAP as an abuse of discretion. Most judges would NOT have dismissed the adversary proceeding.