Opinion
NOT FOR PUBLICATION
Argued and Submitted at Phoenix, Arizona: July 26, 2007
Appeal from the United States Bankruptcy Court for the District of Arizona. Bk. No. 03-14674, Adv. No. 05-00243. Honorable George B. Nielsen, Jr., Bankruptcy Judge, Presiding.
Before: KLEIN, PAPPAS and AHART, [ Bankruptcy Judges.
Hon. Alan M. Ahart, U.S. Bankruptcy Judge for the Central District of California, sitting by designation.
MEMORANDUM
The debtor, Edward J. Ball, Jr., appeals from an order striking his answer pursuant to Federal Rule of Civil Procedure 37(b)(2)(C) in the trustee's adversary proceeding to deny a chapter 7 discharge and the ensuing entry of default judgment denying discharge. Given the debtor's unambiguous disregard of the bankruptcy court's written orders and oral directives, the court's actions of striking the debtor's answer and entering a default judgment after its prior graduated corrective measures proved ineffective were not an abuse of discretion. Accordingly, we AFFIRM.
FACTS
The debtor filed a chapter 11 bankruptcy case on August 19, 2003. The debtor was the president and sole shareholder of Ball Development Corporation, a California corporation.
On September 19, 2003, the debtor's chapter 11 case was dismissed because of the debtor's failure to timely file his schedules and statements as required by Federal Rule of Bankruptcy Procedure 1007. The same day the debtor's case was dismissed, a hearing was held to address an ex parte letter the debtor sent to the court regarding his need for additional time to wind " up [his] affairs."
On September 22, 2003, the bankruptcy court vacated its dismissal order and sua sponte directed the United States Trustee's Office to appoint a chapter 11 trustee. On September 25, 2003, appellee, David Birdsell, was appointed as the chapter 11 trustee.
Soon after the trustee was appointed, the debtor refused to cooperate with him, and the debtor began a series of multiple e-mails, phone messages, and filings principally aimed at the trustee, his attorney, and the court that were abusive, profane, derogatory, scandalous, and defamatory. Such filings by the debtor were so disturbing and disruptive, that the bankruptcy court entered an order on October 14, 2004, that set standards for the debtor's future filings.
Due to the debtor's lack of cooperation with the trustee, and due to his history of filing unfocused and defamatory documents with the court, on November 12, 2003, the bankruptcy court granted the trustee's motion for authority to control the affairs of the debtor's business on behalf of the chapter 11 estate.
The debtor continued his refusal to cooperate with the trustee and actively interfered with the trustee's administration of the estate. In November 2004, the trustee filed a motion to convert the debtor's case to chapter 7 primarily because the debtor " has been remarkably difficult and volatile in his dealings with the trustee" and without the debtor's full cooperation, the trustee would not be able to effectuate a chapter 11 plan. The court converted the debtor's case to chapter 7 on December 22, 2004. Appellee David Birdsell was appointed as the chapter 7 trustee.
After the case was converted, the debtor did not appear at the 11 U.S.C. § 341 meeting of creditors (nor did the debtor seek to reschedule or continue the meeting). Debtor also did not provide the trustee with certain requested business records.
On March 25, 2005, the trustee filed a complaint seeking to deny the debtor's discharge pursuant to 11 U.S.C. § § 727(a)(2)(B), (a)(6)(C), (a)(2)(A), (a)(3), and (a)(4)(D).
The debtor continued his practice of sending frequent and harassing letters, telephone and e-mail messages, telephone calls, and court filings. The debtor's communications made charges of fraud, misrepresentation, malfeasance, perjury, incompetence against the trustee, his attorney, the court, and the U.S. Trustee. The debtor made defamatory and slanderous charges regarding the sexual practices of the members of the trustee's attorney's law firm and the court. The debtor also accused the trustee's attorney's law firm of bribing the court and made threats of life-long litigation to " take the firm down."
The debtor's threatening and harassing behavior caused the trustee to file with the bankruptcy court a complaint and application for a temporary restraining order and preliminary injunctive relief against the debtor. The trustee's motion was denied.
On September 9, 2005, the trustee filed his first request for production of documents. The initial deadline for the debtor to produce documents or otherwise respond to the discovery request was October 12, 2005. The bankruptcy court subsequently granted the debtor's informal request for an extension of the deadline to respond to October 24, 2005.
Still having not received the requested documents from the debtor by the extended October 24 deadline, the trustee sent an email reminder to the debtor on October 25, 2005, stating that the required documents were past due and that the trustee would be filing a motion to compel discovery on October 27, 2005, unless the matter had been resolved to the trustee's satisfaction.
The debtor did not respond to the trustee's October 25 e-mail, nor did he provide any of the requested documents to the trustee.
On November 1, 2005, the trustee filed his Motion to Compel Discovery. The debtor did not respond to the motion.
A hearing on the trustee's motion to compel was held on January 12, 2006. The debtor appeared at the hearing. At the hearing, the debtor informed the court that he had " approximately 40 banker's boxes" of documents to provide to the trustee that were not in any order.
The debtor subsequently provided the trustee with twenty-eight banker's boxes of documents and records. According to the trustee, fifteen of the twenty-eight boxes contained documents that were unresponsive and irrelevant to the discovery request. " The remaining thirteen boxes contained records in such a state of disarray it would be extremely difficult, if not impossible, to reconstruct the debtor's business affairs."
Further hearings on the trustee's motion to compel discovery were held on February 16, 2006, and April 19, 2006. The debtor did not appear at the April 19, 2006, hearing.
At the April 19 hearing, the trustee requested that the debtor's answer to the trustee's complaint to deny debtor's discharge be stricken and judgment entered by default in favor of the trustee. The court declined to enter a default judgment against the debtor at that stage, but granted the trustee's motion to compel discovery. An order on the motion was entered on May 1, 2006.
On May 11, 2006, the trustee filed an application for attorney's fees in connection with its motion to compel discovery. The trustee sought attorney's fees totaling $3, 112. The debtor did not appear at the June 20, 2006, hearing on the trustee's request for attorney's fees, and the court, after reducing the trustee's requested fees, granted the fee request in the amount of $2, 560.
At the June 20, 2006, hearing, the trustee informed the court that he had not had any communication with the debtor, and that he intended to move for sanctions. The court ordered the trustee to file and serve on the debtor its sanctions motion by June 30, 2006, and gave the debtor until July 31, 2006, to respond. The court then set oral argument on the sanctions motion for August 22, 2006.
On June 30, 2006, the trustee filed his Motion to Strike the Debtor's Answer to Trustee's Complaint and to enter judgment by default. The debtor did not file a response to the trustee's motion, nor did he attend the hearing on the motion held on August 22, 2006.
Despite the debtor's lack of response to the motion and lack of appearance at the hearing, the court declined to strike the debtor's answer and enter a default judgment. Instead, the court ordered the trustee to draft a " stern order" directing the debtor to comply with the court's orders (i.e., attorney's fees and discovery) within ten days or the trustee would be authorized to file an entry of default judgment for a denial of the debtor's discharge.
The trustee filed his Order Directing Compliance on August 24, 2006. The debtor had ten days to comply with the court's order. The debtor produced no documents, made no effort to resolve the discovery issues with the trustee, and made no payment of attorney's fees to the trustee, nor did he make arrangements with the trustee for payment.
Due to the debtor's lack of compliance with the court's Order Directing Compliance, on September 14, 2006, the trustee filed his motion for entry of final judgment on his complaint seeking to deny the debtor's discharge.
On September 18, 2006, the bankruptcy court granted the trustee's motion and entered an order striking the debtor's answer pursuant to Federal Rules of Bankruptcy Procedure 7026, 7037, 7055 and Federal Rules of Civil Procedure 26, 37(b)(2)(C), and 55(b)(2), and denying the debtor's discharge pursuant to § § 727(a)(2)(B), (a)(6)(C), (a)(3), and (a)(4)(D).
This appeal ensued.
JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334. We have jurisdiction under 28 U.S.C. § 158(a)(1).
ISSUES
(1) Whether the bankruptcy court abused its discretion when it granted the trustee's motion to strike the debtor's answer pursuant to Rule 37(b)(2)(C).
(2) Whether the court abused its discretion when it granted the trustee's motion for default judgment.
STANDARD OF REVIEW
We review a court's ruling on a motion to strike pursuant to Rule 37(b)(2)(C) for an abuse of discretion. El Pollo Loco, Inc. v. Hashim, 316 F.3d 1032, 1038 (9th Cir. 2003). A court's decision to impose a default judgment as a sanction is also reviewed for an abuse of discretion. Fair Housing of Marin v. Combs, 285 F.3d 899, 905 (9th Cir. 2002) (" Combs"). Discretion is abused when the judicial action is " arbitrary, fanciful or unreasonable" or " where no reasonable [person] would take the view adopted by the trial court." Id . quoting United States Cellular Inv. Co. of L.A., Inc. v. GTE Mobilnet, Inc., 281 F.3d 929, 934 (9th Cir. 2002).
DISCUSSION
Rule 37(b)(2)(C) applies in bankruptcy adversary proceedings and provides:
(2) Sanctions by court in which action is pending. If a party . . . fails to obey an order to provide or permit discovery, . . . the court in which the action is pending may make such orders in regard to the failure as are just, and among others the following: . . .
(C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party[.]
Fed. R. Civ. P. 37(b)(2)(C), incorporated by Fed.R.Bankr.P. 7037.
The debtor asserts that he voluntarily produced to the trustee two banker's boxes of " key books and records" in September 2003, and that the trustee took those boxes and held onto them for six to nine months. When the trustee returned the boxes to the debtor (six to nine months later), the debtor thought that the trustee had made copies of the pertinent records for himself.
The debtor argues that when he was later served with an order in late 2005 demanding that he produce " books and records", he did not re-produce the records he previously produced in September 2003 because he assumed the trustee had copies of those documents. Instead, debtor contends that he voluntarily produced other books and records primarily made up of various receipts and other documents not associated with the " key books and records" previously produced in September 2003. Debtor therefore contends that he produced all books and records necessary to ascertain his financial affairs.
Regardless of the debtor's assessment of the adequacy of his discovery responses, the salient points are that the court ordered the debtor to cooperate with the trustee and comply with the trustee's discovery requests. Instead, the debtor did not respond to the trustee's motions, did not appear at hearings on the discovery disputes, and did not comply with the court's orders.
At the hearing on the motion to compel discovery, the debtor finally agreed to produce documents sought by the trustee in his discovery request. The debtor subsequently produced twenty-eight banker's boxes of documents. However, according to the trustee, the documents received were irrelevant, outside the requested time frame, or so incomplete and in a state of such disarray that it was impossible to reconstruct the debtor's business affairs.
A continued hearing on the trustee's motion to compel discovery was held on April 18, 2006. The debtor did not appear. At that hearing, the court granted the trustee's motion to compel discovery (originally filed on November 1, 2005). The court granted the motion after having granted to the debtor several extensions of time to file a response to the trustee's motion, and several chances to comply with the trustee's discovery requests. Despite the extensions of time, the debtor never responded to the trustee's motion, never complied with the trustee's requests, and did not comply with the court's orders.
Faced with refusal to comply with the court's order, the trustee filed a motion under Rule 37(b)(2)(C) in an effort to invoke the court's power to sanction the debtor as a measure to enforce the court's discovery order.
A determination that an order has been disobeyed is entitled to considerable weight because the trial judge is best equipped to assess the circumstances of the non-compliance. Halaco Eng'g Co. v. Costle, 843 F.2d 376, 379 (9th Cir. 1988).
The bankruptcy court in this case was familiar with the debtor and was in the best position to assess the circumstances of noncompliance and to determine what action to take to remedy the trustee's continuous and failed attempts to complete the discovery process. The court had patiently taken less drastic intermediate steps that proved ineffective. Rule 37(b)(2)(C) authorizes the court to strike out pleadings or parts thereof. The court decided that the best action was to strike the debtor's answer.
The record is clear that the debtor repeatedly and purposefully flouted his discovery obligations and violated court orders. See Combs, 285 F.3d at 905-06.
Pursuant to Rule 37(b)(2)(C), the court also had the authority to render a judgment by default. Once the answer had been striken, the trustee moved for entry of a default judgment. Based on the debtor's history, we cannot say that the court's decision to order the default judgment and deny the debtor's discharge was an abuse of discretion.
Given the court's extensive experience of dealing with this bankruptcy case, we conclude that the court's action was not " arbitrary, fanciful or unreasonable" and that we cannot say that " no reasonable [person] would take the view" adopted by the bankruptcy court in this situation.
The debtor protested during oral argument of this appeal that he is " not a liar." We accept that, but nevertheless affirm because the discharge was denied on other grounds.
CONCLUSION
The bankruptcy court did not abuse its discretion when it invoked Rule 37(b)(2)(C) to strike the debtor's answer, and granted a default judgment thereby denying the debtor's discharge. AFFIRMED.