Opinion
No. 03-4135-SAC, Bankr No. 02-41324-7
March 30, 2004
MEMORANDUM AND ORDER
The district court referred this bankruptcy appeal to the magistrate judge for report and recommendation. (Dk. 3). The magistrate judge filed a report and recommendation on January 27, 2004, (Dk. 10), and a supplement to this report and recommendation on February 2, 2004, (Dk. 12). In both, the magistrate judge recommends that the district court grant the appellee's motion to dismiss the appeal for failure to prosecute in a timely manner. The appellants have filed objections to the report and recommendation and the supplement arguing erroneous factual conclusions and mitigating circumstances and asking that their appeal not be dismissed with prejudice.
STANDARD OF REVIEW
Upon objections to a magistrate judge's report and recommendation, "the district court must undertake a de novo review of the record." Wildermuth v. Furlong, 147 F.3d 1234, 1236 (10th Cir. 1998). The district court has considerable judicial discretion in choosing what reliance to place on the magistrate judge's findings and recommendations. See Andrews v. Deland, 943 F.2d 1162, 1170 (10th Cir. 1991) (citing United States v. Raddatz, 447 U.S. 667 (1980)), cert. denied, 502 U.S. 1110 (1992). When review is de novo, the district court is "`free to follow . . . or wholly . . . ignore'" the magistrate judge's recommendation, but it "`should make an independent determination of the issues'" without giving "`any special weight to the prior'" recommendation. Andrews, 943 F.2d at 1170 (quoting Ocelot Oil Corp. v. Sparrow Industries, 847 F.2d 1458, 1464 (10th Cir. 1988)). The district court is required to consider relevant evidence of record and not merely review the magistrate judge's recommendation. In re Griego, 64 F.3d 580, 584 (10th Cir. 1995). In short, the district court may accept, reject, or modify the magistrate judge's findings, or recommit the matter to the magistrate judge with instructions. See 28 U.S.C. § 636(b)(1).
PROCEDURAL BACKGROUND
The appellants are counsel to the debtors in a chapter seven proceeding. They appeal from a bankruptcy court order finding them in civil contempt for failing to file, as previously ordered, a fee application, schedules and a statement of financial affairs and to appear before the bankruptcy court to show cause why they had not complied with the prior order. In the contempt order, the bankruptcy court imposed sanctions against the appellants'/debtor's counsel that included the following:
Victor E. Nelson shall not engage in the practice of law in other cases before the United States Bankruptcy Court for the District of Kansas until he files the fee application in this case required by the Court's previous orders, disgorges the fees as ordered in item (1) above ["disgorge to the Chapter 7 trustee in this case all fees he received from any and all sources for representing debtor Miller Grain Company, Inc.,], and pays the fees and expenses as ordered in item (2) above ["Mr. Nelson shall pay Ms. Williamson's fees of $2,850, and Ms. Hamilton's fees of $3,334."]
(Dk. 1, Ex. 3). Less than four weeks after filing their appeal, the appellants filed a motion to extend the time for filing their opening brief. (Dk. 2). In her response to this motion, the appellee remarked that the appellants had not served their transcript request on the court reporter in order to complete the record for appeal. (Dk. 4).
The appellants filed a second motion for extension admitting that they had not served their request on the court reporter and informing the court that they were making arrangements for the production of these additional transcripts to supplement the transcripts already in the court file. (Dk. 6). The appellants also explained that the bankruptcy court's sanction that suspended their bankruptcy practice had "severely impacted financially" their practice as well as their ability to pay for the transcripts, to meet the firm's overhead, and to support the attorney's family. The appellants further noted that they were seeking, inter alia, a stay of the bankruptcy court's sanctions order.
On December 3, 2003, the trustee filed a motion to dismiss the bankruptcy appeal. (Dk. 7). In support of its motion, the trustee summarized those related proceedings transpiring before the bankruptcy court. On October 17, 2003, the bankruptcy court granted the appellants' request for a stay pending the appeal on conditions that insured the appellants' prompt prosecution of this appeal. One condition was that the appellant obtain and file every needed transcript by November 17, 2003. The trustee reported that the appellants had not complied with this condition and that the trustee had filed a pleading notifying the bankruptcy court of this failure to comply. The trustee also represented she was aware of the court reporter being contacted about the cost of transcribing the contempt hearing but that the appellants had not prepaid the cost of the transcript and had not made any other arrangement for its payment. Thus, the trustee asked the district court to dismiss the appeal because the appellants had yet to secure the transcripts listed by them as part of the necessary record on appeal.
On January 16, 2004, the magistrate judge issued an order for the appellants to show cause in writing "why appellee's motion to dismiss the appeal should not be granted as unopposed." (Dk. 9). The appellants were given until January 23, 2004, to submit their response. At 12:12 a.m. on January 24, 2004, the appellants filed their response stating that they ordered the transcripts, that the court reporting firm required full payment in advance, and that the transcripts were expected to be done by the end of January. (Dk. 11). The appellants also pointed out that the bankruptcy court had extended the deadline for procuring the transcripts to February 5, 2004, and that the trustee filed in bankruptcy court a response not opposing the appellants' last requested extension of this deadline.
On January 27, 2004, the magistrate judge filed a report and recommendation based in part on the erroneous supposition that the appellants had not filed any response to the show cause order or to the motion to dismiss. (Dk. 10, p. 2). The magistrate judge weighed the different factors finding that all parties were prejudiced by the appellants' delay in prosecuting the appeal, that the appellants by reason of their legal practice should be quite familiar with the rules, and that a sanction short of dismissal "would have no valuable effect" based on the appellants' failure to respond to the motion to dismiss and disregard for the show cause order and the bankruptcy court's order. (Dk. 10, p. 5). For these reasons, the magistrate judge recommended that the district court grant the trustee's motion to dismiss the appeal.
Less than a week later, the magistrate judge filed a supplement to the report and recommendation in which he explained that the appellant's untimely response to the show cause order was not brought to his attention until sometime later because of a delay in docketing the appellants' response. This delay happened because the response was not filed electronically but rather was filed in the drop box at the federal courthouse in Wichita, Kansas. The magistrate judge, however, did not change his recommendation and gave the following reasons for granting the trustee's motion to dismiss. First, the appellants have yet to respond to the trustee's motion to dismiss and their response to the show cause order does not explain or apologize for the lack of a response. Second, appellants have not shown good cause for their delay in filing the necessary transcripts. Third, the appellants violated Rule 8006 of the Federal Rules of Bankruptcy Procedure by not "immediately" delivering to the court reporter and filing with the clerk their "written request for the transcript" and arranging for payment of the transcript's cost. Rule 8001 authorizes the district court or bankruptcy appellate panel to take any appropriate action, including dismissal of the appeal, for an appellant's failure to take these additional steps in prosecuting an appeal. Fourth, the magistrate judge offered that the "[a]ppellants' repeated failure to meet the deadlines of this court, as well as the bankruptcy court, in conjunction with this appeal, evidences at least gross negligence and indifference, and-in the undersigned's opinion-shows bad faith on appellants' part." (Dk. 12, p. 7). Fifth, a less severe sanction, in the magistrate judge's opinion, would have no desired effect, as evidenced by the appellants' "practice of ignoring court rules and orders." Id. As examples of this practice, the magistrate judge looked to the appellants' conduct before the bankruptcy court as well as their dilatory prosecution of this appeal. Thus, the magistrate judge recommended that district court grant the trustee's motion and dismiss this appeal with prejudice.
OBJECTIONS TO REPORT AND RECOMMENDATION
The appellants take issue with a number of factual propositions stated in the magistrate judge's order. The magistrate judge observed that no transcripts had been filed as of February 2, 2004. The appellants report that the transcript of the civil contempt evidentiary hearing on February 23, 2003, was filed by the court reporter on January 27, 2004, with the Clerk of the Bankruptcy Court. The magistrate judge observed that the appellant's response to the show cause order was untimely filed missing the deadline by twelve minutes. The appellants report that the notice of show cause was dated and postmarked January 16, 2004, but was not received by the appellants until January 21, 2004. Thus, the appellants had just two days to prepare and file a response rather than the longer period stated in the court's notice. The magistrate judge's first reason for recommending dismissal was that the appellants had yet to respond to the motion to dismiss. The appellants point out that their filing on January 24, 2004, was captioned both as a response to the show cause order and an "objection to appellee's motion to dismiss." (Dk. 11). The appellants apologize for this confusion over the intended purpose and scope of their filing. The magistrate judge found that the appellants' failure to prosecute this appeal was not in good faith, as they waited more than six months to cure the defect about which they were notified on June 30, 2003. The appellants offer that they did not learn of their transcript request not being forwarded to the court reporter until after August 1, 2003, that they contacted the court reporting firm numerous times about ordering the transcript and exploring payment options for the work, that they were in "desperate financial straits" because of the contempt order, that a stay of this order was not granted until October, and that the bankruptcy court extended the stay accordingly in order for the appellants to earn the necessary funds to pay for the transcript work to be completed. The magistrate judge found that the appellants violated the contempt order by filing matters in at least five bankruptcy cases before any stay had been granted. The appellants say they intend to appeal the bankruptcy court's finding in that regard as unsupported by any evidence of record.
The trustee/appellee has not filed any response to the appellants' objections.
GOVERNING LAW
Rule 8006 requires a party designating a transcript as part of the record to immediately "deliver to the reporter and file with the clerk a written request for the transcript and make satisfactory arrangements for payment of its cost." Rule 8001(a) gives a district court the discretion to dismiss a bankruptcy appeal for failure to take a step necessary to perfect an appeal. Thus, a district court may dismiss a bankruptcy appeal when the appellant does not timely request a designated transcript and arrange for payment of the same.
The Tenth Circuit considers dismissal with prejudice to be an extreme sanction for failure to prosecute an appeal and has cautioned district courts to consider the following factors before resorting to this sanction: "(1) the degree of actual prejudice to the defendant; (2) the amount of interference with the judicial process; (3) the culpability of the litigant; (4) whether the court warned the party in advance that dismissal of the action would be a likely sanction for noncompliance; and (5) the efficacy of lesser sanctions." In re Hopkins, 162 F.3d 1173, 1998 WL 704710, at *1 (10th Cir. Oct. 5, 1998) (citing Jones v. Thompson, 996 F.2d 261, 263 (10th Cir. 1993) (quoting in turn Ehrenhaus v. Reynolds, 965 F.2d 916, 920-21 (10th Cir. 1992))).
ANALYSIS AND CONCLUSION
After weighing the different factors within the circumstances of this case, the court denies the trustee's motion. Hearing nothing from the trustee as to prejudice, the court could stand on the reasonably sound proposition that delay necessarily results in prejudice. On the other hand, the appellants represent that the trustee did not oppose the appellants' most recent request for extension of the transcript deadline underlying the bankruptcy court's stay order. Thus, the court is not persuaded that this prejudice factor is significant here.
There is no question that the appellants' conduct has interfered with the court's appeal procedures which encourage timely disposition of such matters. Moreover, the court was even required to issue a show cause order before the appellant would respond to the pending motion to dismiss. Had the appellants been more attentive to this appeal and kept the district court abreast of their efforts to secure the necessary transcript and the bankruptcy court's related work at monitoring the appellants' efforts, it is quite likely the proceedings here would not have progressed to this stage.
There can be no argument that the appellants as attorneys should have known better than to ignore a motion to dismiss and to not inform the district court in a regular and repeated manner of their efforts at ordering and paying for the transcript and their difficulty in doing same. Even so, the court recognizes the appellants made some effort in their second motion for an extension to explain their desperate financial situation resulting from the bankruptcy court's contempt order, their financial inability to pay for the necessary transcript, and their efforts before the bankruptcy court to seek a stay of the contempt order. Furthermore, the appellants attempted to meet an abbreviated deadline in responding to the notice to show cause and therewith filed their opposition to the pending motion to dismiss. Based largely on the uncontested representations from the appellants, the court is unable to conclude that the appellants simply did nothing for six months in order to perfect their appeal. The appellants were facing a situation where they were financially unable to pay in advance the full cost of the transcript because of the impact of the contempt order on their bankruptcy practice. Rather than doing nothing, the appellants unsuccessfully tried to negotiate alternative payment arrangements with the court reporting firm, and they also pursued a stay of the contempt order which they were appealing. A reasonable period after the stay was granted, the appellants paid for the transcript and it is now part of the record on appeal. The court considers the above to be unique mitigating circumstances that prevent labeling the appellants' actions as bad faith, gross negligence or indifference.
Finally, the court is not persuaded that a sanction short of dismissal would be ineffective in dealing with the appellants' actions. The appellants should consider this order to be the last warning about dilatory conduct and should comply promptly with all future deadlines set in this appeal. The court recommits the reference of this case to the magistrate judge with directions to set a briefing schedule on the merits of this appeal and to complete his report and recommendation accordingly.
IT IS THEREFORE ORDERED that the magistrate judge's report and recommendation and supplemental report and recommendation (Dks. 10 and 12) are not adopted by the court;
IT IS FURTHER ORDERED that the trustee's motion to dismiss appeal (Dk. 7) is denied;
IT IS FURTHER ORDERED that the reference of this bankruptcy court is recommitted to the magistrate judge who will set a briefing schedule on the merits of this appeal and issue his report and recommendation accordingly.