In re: Sarkis Antabian ( 2016 )

FILED
DEC 21 2016
1 NOT FOR PUBLICATION
2 SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5
In re: ) BAP Nos. CC-16-1085-PaKiF
6 ) CC–16–1129–PaKiF
SARKIS ANTABIAN, ) (Related)
7 )
Debtor. ) Bk. No. 2:15-bk-11479-ER
8 ______________________________)
) Adv. No. 2:15-ap-01339-ER
9 SARKIS ANTABIAN, )
)
10 Appellant, )
)
11 v. ) M E M O R A N D U M*
)
12 WELLS FARGO BANK, N.A., )
)
13 Appellee. )
______________________________)
14
Argued on November 17, 2016
15 at Pasadena, California
Submitted on December 9, 2016
16
Filed - December 21, 2016
17
Appeal from the United States Bankruptcy Court
18 for the Central District of California
19 Honorable Ernest M. Robles, Bankruptcy Judge, Presiding
20
Appearances: Jayne Kaplan argued for appellant; J. Alexandra
21 Rhim of Hemar, Rousso & Heald, LLP argued for
appellee.
22
23 Before: PAPPAS,** KIRSCHER, and FARIS, Bankruptcy Judges.
24
25
*
This disposition is not appropriate for publication.
26 Although it may be cited for whatever persuasive value it may
27 have, see Fed. R. App. P. 32.1, it has no precedential value, see
9th Cir. BAP Rule 8024-1.
28
**
The Honorable Jim D. Pappas, United States Bankruptcy
Judge for the District of Idaho, sitting by designation.
1 Appellant Sarkis Antabian, a chapter 111 debtor (“Debtor”),
2 separately appeals two bankruptcy court orders relating to the
3 dismissal of his adversary proceeding against appellee Wells
4 Fargo Bank, N.A. (“Wells Fargo”). The related appeals were
5 ordered jointly briefed. We conclude that the appeals are not
6 moot and AFFIRM.
7 I. FACTS
8 A. The Bankruptcy Case
9 Debtor is the sole shareholder of Aviation Tire and Service
10 Corporation (“ATS”), which conducted business at 3410 Aviation
11 Boulevard in Redondo Beach, California (“the Property”). In
12 2007, Debtor personally borrowed approximately $1.3 million from
13 Wells Fargo (“the Loan”). The Loan was secured by a deed of
14 trust that encumbered the Property. By early 2013, Debtor had
15 ceased making payments on the Loan.
16 In September 2014, Wells Fargo recorded a notice of default.
17 Then, in January 2015, it recorded a notice of sale of the
18 Property and scheduled a trustee’s sale for February 4, 2015.
19 However, three days prior to the sale, Debtor, with the
20 assistance of his counsel Jayne Kaplan (“Counsel”), filed a
21 chapter 11 petition, thereby preventing the sale from occurring.
22 Debtor intended to propose a liquidation of his assets in
23 his chapter 11 plan. Prior to filing for bankruptcy, Debtor had
24
25
1
Unless otherwise indicated, all chapter and section
26 references are to the Bankruptcy Code, 11 U.S.C. §§ 101–1532, all
27 Rule references are to the Federal Rules of Bankruptcy Procedure,
Rules 1001–9037, and all Civil Rule references are to the Federal
28 Rules of Civil Procedure, Rules 1–86.
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1 attempted to sell the Property, but had received no offers
2 despite gradually reducing the price from $2.2 million to
3 $1.4 million. By the time Debtor commenced his chapter 11 case,
4 he owed Wells Fargo approximately $1.5 million on the Loan, an
5 amount that continued to increase. Moreover, the Los Angeles
6 County Tax Collector filed a proof of claim in the bankruptcy
7 case for unpaid taxes on the Property for approximately $50,000.
8 B. Counsel’s Health Problems
9 When Counsel filed Debtor’s chapter 11 petition in February
10 of 2015, she was experiencing medical problems. Almost a year
11 prior to the filing, in March 2014, she was rushed to the
12 hospital for a life-saving surgery, after which she was
13 hospitalized for a number of weeks. In December 2014, she was
14 again hospitalized for a similar surgery. Counsel would later
15 represent that, following the second surgery, she was “trying
16 through the whole of 2015, to determine if [she] had Crohn’s
17 disease” and underwent either two or three invasive diagnostic
18 tests that year. In May 2015, Counsel was referred to a
19 specialized clinic, but she explained that “it took a long time
20 to get appointments.”
21 C. The Adversary Proceeding
22 About four months into the bankruptcy case, on June 8, 2015,
23 Wells Fargo filed a motion for relief from the automatic stay so
24 that it could foreclose and sell the Property. Debtor opposed
25 the motion. Debtor argued that Wells Fargo’s security interest,
26 while once valid, was no longer effective as to the Property
27 because the parties had executed a mutual general release in the
28
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1 settlement of a separate commercial dispute between the parties.2
2 On June 25, 2015, prior to the hearing on Wells Fargo’s
3 motion for relief from stay, Debtor commenced an adversary
4 proceeding against Wells Fargo, challenging the validity of Wells
5 Fargo’s secured interest in the Property in light of the general
6 release. The complaint included four claims for relief. The
7 first two sought a determination of the extent, validity, and
8 priority of Wells Fargo’s Deed of Trust and security interest in
9 the Property. In the third claim, Debtor, as the debtor-in-
10 possession in the chapter 11 case, sought to avoid Wells Fargo’s
11 lien in the Property pursuant to § 544(a). And finally, the
12 fourth claim for relief requested a declaration that all of Wells
13 Fargo’s claims and causes of action against Debtor and ATS had
14 been released.
15 Despite Debtor’s opposition, on July 6, 2015, the bankruptcy
16 court granted Wells Fargo’s motion and terminated the automatic
17 stay. Even so, according to Wells Fargo, it was unable to
18 conduct a trustee’s sale due to the pending adversary
19 proceeding.3 Meanwhile, Wells Fargo filed a motion to dismiss
20
21 2
In a deal negotiated by ATS’s corporate counsel in January
22 2015, the settlement resolved a dispute regarding a debt ATS owed
Wells Fargo.
23
3
The effect of the adversary proceeding on Wells Fargo’s
24
ability to dispose of the Property is disputed. Wells Fargo
25 argues, and the bankruptcy court stated in its later order
dismissing the adversary proceeding, that the litigation
26 prevented Wells Fargo from exercising its rights with respect to
27 the Property. Debtor disputes this, contending that nothing
prohibited Wells Fargo from foreclosing and selling the Property
28 (continued...)
-4-
1 the adversary proceeding for failure to state a claim, which
2 Debtor opposed, and the bankruptcy court denied. Thereafter, in
3 September 2015, Wells Fargo filed an answer to Debtor’s complaint
4 and a counterclaim against Debtor.
5 1. October 2015
6 On October 12, 2015, Wells Fargo’s lawyer emailed Counsel
7 requesting that they meet and confer about the adversary
8 proceeding the following week and suggested two dates. Counsel
9 did not respond.
10 On October 13, 2015, the bankruptcy court held a status
11 hearing in the adversary proceeding attended by the parties’
12 counsel. At the hearing, the bankruptcy court set a discovery
13 deadline of March 31, 2016, and scheduled the trial for May 31,
14 2016. It also ordered Debtor to lodge a completed “Request for
15 Assignment to Mediation Program; [Proposed] Order Thereon” (the
16 “Mediation Order”) within 15 days of the date of the hearing, and
17 to lodge a scheduling order.
18 The day after the status hearing, Wells Fargo’s lawyer
19 emailed Counsel again and requested a response to the prior email
20 requesting a meeting. Counsel responded, noting she had filed an
21 answer to the counterclaim, but that she needed to file her
22 personal tax returns before she could attend to the mediation
23 papers.
24 On October 28, having heard nothing more from Counsel, Wells
25 Fargo’s attorney again emailed Counsel regarding preparation of
26
27 3
(...continued)
28 since the bankruptcy court had terminated the automatic stay.
-5-
1 the Mediation Order. Counsel responded by forwarding an
2 incomplete request for assignment to mediation form without a
3 proposed order. When Wells Fargo’s lawyer informed Counsel that
4 the materials she sent were incomplete, Counsel did not provide a
5 meaningful response, nor did she supply a completed form or
6 order.
7 2. November 2015
8 On November 6, 2015, Counsel underwent an invasive
9 diagnostic test in her continued effort to determine the cause of
10 her medical problems. Later that month, on November 20, Wells
11 Fargo’s lawyer sent Counsel another email reminding her that they
12 needed to meet and confer quickly to comply with the bankruptcy
13 court’s order concerning mediation. Wells Fargo’s attorney
14 further noted that they also needed to make arrangements to
15 conduct depositions of the parties. Counsel responded to this
16 email, stating, “I have been working on another case
17 intensively,” and that she intended to send financial information
18 on a potential purchaser of the Property. She further stated she
19 would get back to Wells Fargo by Tuesday, November 24.
20 On November 23, Counsel met with a doctor from the
21 speciality clinic. The doctor told her that the cause of her
22 condition was still undetermined, but that she was cleared for a
23 third surgery to resolve a condition resulting from the first two
24 surgeries. Counsel did not contact Wells Fargo by November 24,
25 so Wells Fargo’s lawyer emailed her yet again, explaining that
26 they were now approaching the discovery deadline, and that if
27 Wells Fargo did not hear from Counsel by the next day, it would
28 assume Debtor was not seriously pursuing settlement. Counsel did
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1 not respond to this email.
2 On November 30, Wells Fargo’s attorney again emailed
3 Counsel. She expressed hope that they could schedule mediation
4 in December and listed the mediators Wells Fargo would accept.
5 Wells Fargo requested that Counsel advise of her choice of
6 mediators and volunteered to prepare the mediation order in
7 Counsel’s stead. Further, because Counsel had failed to prepare
8 the scheduling order as instructed by the bankruptcy court at the
9 October 13 hearing, Wells Fargo’s lawyer explained that she had
10 prepared a scheduling order in her stead and planned to lodge it
11 that day. Wells Fargo did so.
12 3. December 2015
13 On December 1, the bankruptcy court entered the scheduling
14 order that Wells Fargo had lodged. It also entered an order
15 directing Debtor to lodge a completed request for assignment to
16 the mediation program by December 16. This order warned that
17 Debtor’s continued failure to comply with the bankruptcy court’s
18 orders “may result in the imposition of sanctions, including
19 dismissal of the action for failure to prosecute.”
20 At about this time, Counsel was attempting to schedule her
21 latest surgery. While Counsel was originally scheduled for
22 surgery on November 23, her surgeon delayed it. It was not until
23 December 16, after Counsel consulted another specialist, that she
24 was officially approved for surgery.
25 December 16 also happened to be the deadline for submission
26 of the Mediation Order. Despite the developments concerning
27 Counsel’s health, the bankruptcy court’s order had apparently
28 spurred Counsel to action. On December 16, Counsel requested
-7-
1 signatures from Wells Fargo on a proposed Mediation Order. Wells
2 Fargo’s lawyer asked that minor changes be made; Counsel
3 responded, “I am headed to the doctor. Why don’t you make the
4 changes[.]” Wells Fargo’s attorney did so, and Wells Fargo gave
5 Counsel its permission to submit the proposed Mediation Order
6 that day. It also renewed its request to select mediation dates
7 for the following month. Counsel responded that she had been
8 cleared for surgery, and that she would provide dates once it was
9 scheduled. She explained, “[i]f we have to mediate from my
10 hospital bed we can do that, but my surgery is a priority.”
11 4. January 2016
12 On January 11, 2016, Wells Fargo again reached out to
13 Counsel regarding dates for a mediation, and served a Notice of
14 Deposition and Request for Production of Documents. The
15 deposition was set for February 17, 2016.
16 Counsel responded, indicating that she had drafted a
17 settlement agreement and a proposed purchase and sales agreement
18 (“PSA”) for a potential purchaser of the Property. Counsel had
19 intended to meet with the potential buyer that week, but she no
20 longer could because her surgery was scheduled for that Friday.
21 She proposed to discuss scheduling the following week because
22 preparing for the surgery was commanding all of her energy and
23 attention.
24 In response, Wells Fargo’s lawyer expressed sympathy for
25 Counsel’s health issues and reminded her that it had attempted to
26 accommodate her. However, Wells Fargo felt that Counsel’s health
27 problems had not been “the sole cause of the continuing delay,”
28 and that it doubted that a purchaser for the Property truly
-8-
1 existed. Counsel provided no meaningful response to this
2 message.
3 Counsel had surgery on January 15, 2016. Her doctors
4 advised her that she may experience fatigue for up to six weeks.
5 On some date prior to January 26, Counsel sent Wells Fargo’s
6 lawyer an incomplete settlement agreement concerning the
7 Property. When Wells Fargo requested more details, Counsel
8 explained that she would begin to work on it, but that she was
9 fatigued. Counsel indicated that she had sent the draft
10 agreement because she wanted to ease Wells Fargo’s criticism.
11 During this message exchange, Wells Fargo again requested dates
12 for mediation, but to no avail.
13 5. February 2016
14 Counsel emailed Wells Fargo’s lawyer on February 11, 2016.
15 She explained she had a draft of the PSA, and she planned to meet
16 with the purchaser the following week. Counsel indicated that
17 she still felt “foggy” from the surgery, and requested that the
18 deposition be postponed. She offered to stipulate to an
19 extension of the discovery deadline.
20 Wells Fargo responded that, given Counsel’s continuing
21 health concerns, it was willing to postpone the deposition to
22 February 25 if Counsel would provide a fully executed PSA by
23 February 19, and if she identified specific dates she would be
24 available for mediation. Counsel refused to agree to these
25 terms, stating that she would not identify the purchaser in fear
26 that Wells Fargo may make an “end run” concerning a sale of the
27 Property; Wells Fargo’s counsel declined Counsel’s offer to
28 extend the discovery cutoff.
-9-
1 Significantly, Counsel did not ask the bankruptcy court for
2 an order excusing compliance with the discovery notice, but
3 instead, filed a pleading captioned “Objection to Notice of
4 Deposition and Request for Continuance.” Counsel represented
5 that Debtor needed a continuance of the deposition due to the
6 effects of Counsel’s surgery on January 15. Counsel did not seek
7 a hearing nor submit a proposed order in connection with the
8 “objection.” Counsel and Debtor did not appear for the
9 deposition and did not produce the documents requested by Wells
10 Fargo.
11 6. March 2016; The Motion, Hearing, and Orders
12 On March 1, 2016, Wells Fargo filed a motion seeking
13 dismissal of the adversary proceeding for Debtor’s failure to
14 prosecute and willful violation of court orders (“the Motion”).
15 Wells Fargo argued that while it had attempted to accommodate
16 Debtor and Counsel for months, it was now being forced to pursue
17 the Motion due to Debtor’s deliberate delay. In support of the
18 Motion, Wells Fargo relied on Debtor’s failure to abide by the
19 bankruptcy court’s order concerning mediation; to attend the
20 deposition and produce documents; or to provide initial
21 disclosures and conduct discovery. It also alleged that Debtor
22 had failed to pursue either a settlement or sale of the Property,
23 and had made misrepresentations designed to delay any sale.
24 Debtor opposed the Motion, arguing that dismissal was not
25 warranted because any possible delays were caused by Counsel’s
26 serious health problems and were not related to any conduct of
27 Debtor. Additionally, Debtor insisted that the only real delays
28 he had caused stemmed from a failure to provide a substitute date
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1 for the deposition and a failure to effectuate a settlement as
2 rapidly as Wells Fargo wished, and that despite Counsel’s health
3 problems, she was still able to draft agreements for a potential
4 purchaser, as well as for a settlement with Wells Fargo.
5 Concerning discovery, Debtor contended that Wells Fargo had
6 declined Counsel’s good faith offers to resolve the timing
7 dispute, and had failed to take required procedural steps
8 regarding the resolution of discovery disputes before filing the
9 Motion.
10 Prior to the hearing on the Motion, in an email to Wells
11 Fargo’s lawyer dated March 11, Counsel continued to assert that a
12 sale of the Property was in process. When Wells Fargo requested
13 evidence of a sale, Counsel did not respond. On March 14, Wells
14 Fargo emailed Counsel asking for a response and for possible new
15 deposition dates. Counsel again failed to provide any sale
16 information, and declined to propose deposition dates. She told
17 Wells Fargo’s attorney that it made more sense to schedule a
18 mediation first, though she proposed no dates for a mediation.
19 The bankruptcy court conducted the hearing on the Motion on
20 March 23.4 Counsel, along with an attorney for ATS, Debtor’s
21 corporation, appeared for Debtor. In defense to the Motion,
22 Counsel described her health problems in detail. Counsel
23
4
The bankruptcy court entered a tentative ruling shortly
24
before the hearing. The ruling is not in the record provided to
25 the Panel, but it apparently forewarned Debtor of the court’s
inclination to grant the Motion. Indeed, the findings of fact
26 and conclusions of law attached to the bankruptcy court’s orders
27 on appeal stated that the additional information regarding
Counsel’s health concerns presented at the hearing did not alter
28 the Court’s tentative ruling.
-11-
1 admitted that she perhaps should not have taken Debtor’s case
2 because she was ill. ATS’s counsel then provided some details
3 about potential purchasers of the Property. He described the
4 proposed deal as a “short sale,” and indicated that it would
5 include the Property and Debtor’s business, but he did not
6 specify a purchase price. As near as the Panel can tell, no
7 evidence was submitted by Debtor to substantiate that a sale was
8 in process. ATS’s counsel told the bankruptcy court that Debtor
9 had been personally unaware of any of the circumstances
10 concerning the Mediation Order.
11 Following the hearing, on March 24, the bankruptcy court
12 entered an order, attaching its findings of facts and conclusions
13 of law, determining that the adversary proceeding would be
14 dismissed with prejudice based upon Debtor’s failure to prosecute
15 pursuant to Rule 7041 and Civil Rule 41(b). The dismissal would
16 occur on April 29, 2016, unless the parties reached a settlement
17 concerning the Property prior to that date. The bankruptcy court
18 also ordered that Counsel cease contact with Wells Fargo’s
19 lawyer, as their communications were unlikely to produce a
20 settlement agreement, and directed that ATS’s counsel assume the
21 responsibility of seeking a settlement. Debtor filed a timely
22 notice of appeal (BAP No. CC-16-1085) from this order.
23 When no settlement was reached by the parties, on May 9, the
24 bankruptcy court entered an order confirming the finality of the
25 order dismissing the adversary proceeding with prejudice. Debtor
26 timely appealed (BAP No. CC-16-1129) this order as well.
27 7. Sale of the Property
28 At oral argument, Wells Fargo’s counsel informed the Panel
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1 that, after completion of appellate briefing, the Property had
2 been sold as a result of the dismissal of the adversary
3 proceeding. As requested by the Panel, after argument, Wells
4 Fargo produced a “Trustee’s Deed Upon Sale,” which indicates that
5 the foreclosure sale occurred on November 10, 2016, and that the
6 buyer was a party unaffiliated with Wells Fargo. The Property
7 sold for approximately $1.4 million.
8 II. JURISDICTION
9 The bankruptcy court had jurisdiction under 28 U.S.C.
10 §§ 1334 and 157(b)(2)(B), (K), and (O). As explained below,
11 despite the foreclosure sale, the Panel has jurisdiction over
12 this appeal under 28 U.S.C. § 158.
13 III. ISSUES
14 (1) Did the sale of the Property render this appeal moot?
15 (2) Did the bankruptcy court abuse its discretion when it
16 dismissed Debtor’s adversary proceeding against Wells Fargo with
17 prejudice for failure to prosecute?
18 IV. STANDARDS OF REVIEW
19 We review our own jurisdiction, including questions of
20 mootness, de novo. Ellis v. Yu (In re Ellis), 523 B.R. 673, 677
21 (9th Cir. BAP 2014) (citing Silver Sage Partners, Ltd. v. City of
22 Desert Hot Springs (In re City of Desert Hot Springs), 339 F.3d
23 782, 787 (9th Cir. 2003)).
24 A bankruptcy court’s order dismissing an adversary
25 proceeding with prejudice for failure to prosecute is reviewed
26 for an abuse of discretion. Moneymaker v. Coben (In re Eisen),
27 31 F.3d 1447, 1451 (9th Cir. 1994) (citing Morris v. Morgan
28 Stanley & Co., 942 F.2d 648, 650 (9th Cir. 1991); Carey v. King,
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1 856 F.2d 1439, 1440 (9th Cir. 1988)). A bankruptcy court abuses
2 its discretion if it applies an incorrect legal rule or its
3 factual findings are illogical, implausible, or without support
4 in the record. See United States v. Hinkson, 585 F.3d 1247, 1262
5 (9th Cir. 2009) (en banc). “[T]he trial court’s exercise of
6 discretion should not be disturbed unless there is ‘a definite
7 and firm conviction that the court below committed a clear error
8 of judgment in the conclusion it reached upon a weighing of the
9 relevant factors.’” In re Eisen, 31 F.3d at 1451 (citing Nealey
10 v. Transportacion Maritima Mexicana, S.A., 662 F.2d 1275, 1278
11 (9th Cir. 1980)).
12 V. DISCUSSION
13 A. Mootness
14 At oral argument, Wells Fargo’s counsel argued that, due to
15 the very recent sale of the Property to a third party, these
16 appeals are now moot. Of course, the Panel lacks jurisdiction
17 over moot appeals, Hudson v. Martingale Invs., LLC
18 (In re Hudson), 504 B.R. 569, 573 (9th Cir. BAP 2014) (citing
19 I.R.S. v. Pattullo (In re Pattullo), 271 F.3d 898, 901 (9th Cir.
20 2001)), including those that become moot while the appeal is
21 pending, In re Pattullo, 271 F.3d at 900.
22 Wells Fargo, as the party arguing for dismissal of this
23 appeal based on mootness, “has the heavy burden of establishing
24 that there is no effective relief remaining for a court to
25 provide.” Id. (citing Suter v. Goedert, 504 F.3d 982, 986 (9th
26 Cir. 2007)). Despite this burden, Wells Fargo offered little to
27 support its position.
28
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1 Constitutional mootness5 would deprive the Panel of
2 jurisdiction in this appeal. “Constitutional mootness is
3 jurisdictional and derives from the case-or-controversy
4 requirement of Article III.” Castaic Partners II, LLC v.
5 Daca–Castaic, LLC (In re Castaic Partners II, LLC), 823 F.3d 966,
6 968 (9th Cir. 2016) (citing Clear Channel Outdoor, Inc. v.
7 Knupfer (In re PW, LLC), 391 B.R. 25, 33 (9th Cir. BAP 2008)).
8 “A live case or controversy exists only if the parties have an
9 interest in the outcome of the litigation.” In re PW, LLC,
10 391 B.R. at 33 (citing Ellis v. Bhd. of Ry., Airline & S.S.
11 Clerks, Freight Handlers, Exp. & Station Emps., 466 U.S. 435, 442
12 (1984)). Thus, “[t]he test for mootness of an appeal is whether
13 the appellate court can give the appellant any effective relief
14 in the event that it decides the matter on the merits in his
15 favor.” In re Castaic Partners II, LLC, 823 F.3d at 968–69
16 (citing Motor Vehicle Cas. Co. v. Thorpe Insulation Co.
17 (In re Thorpe Insulation Co.), 677 F.3d 869, 880 (9th Cir.
18 2012)).
19 “If there is no longer a possibility that an appellant can
20 obtain relief for his claim, that claim is moot . . . .” Foster
21
5
22 While equitable mootness may, in some circumstances,
prevent the Panel from deciding an appeal on the merits, Wells
23 Fargo has not argued that it applies in this case, and the Panel
agrees that application of the equitable mootness doctrine is
24
inappropos under these facts. See JPMCC 2007–C1 Grasslawn
25 Lodging, LLC v. Transwest Resort Props. Inc. (In re Transwest
Resort Props., Inc.), 801 F.3d 1161, 1167 (9th Cir. 2015)
26 (stating, “[a]n appeal is equitably moot if the case presents
27 transactions that are so complex or difficult to unwind that
debtors, creditors, and third parties are entitled to rely on the
28 final bankruptcy court order”).
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1 v. Carson, 347 F.3d 742, 745 (9th Cir. 2003). However, “while a
2 court may not be able to return the parties to the status quo
3 ante . . ., an appeal is not moot if the court can fashion some
4 form of meaningful relief . . . .” In re Pattullo, 271 F.3d. at
5 901 (citing United States v. Arkison (In re Cascade Rds.),
6 34 F.3d 756, 756 (9th Cir. 1994)).
7 For example, in one case, a chapter 7 trustee sued the
8 appellant to quiet title to a parcel of real property. Bateman
9 v. Grover (In re Berg), 45 B.R. 899, 900 (9th Cir. BAP 1984).
10 The bankruptcy court ruled that the appellant had no interest in
11 the property, and it was sold while the order quieting title was
12 on appeal. Id. However, the Panel held that the appeal was not
13 moot. Id. at 902. The Panel explained that the appellant was
14 not appealing the order authorizing sale of the property, but the
15 order quieting title in the trustee, and, it concluded, that
16 while the appellant may be precluded from having title to the
17 property revested in him, the appeal was not moot because
18 appellant was not precluded from recovering a monetary award.
19 Id.20 In another case, the bankruptcy court authorized the sale
21 of property and a distribution of the proceeds to a secured
22 creditor despite the IRS’s objection and assertion it held a
23 senior lien on the property. I.R.S. v. Valley Nat’l Bank
24 (In re Decker), 199 B.R. 684, 685 (9th Cir. BAP 1996). The Panel
25 held that, despite the sale of the property, the appeal of the
26 bankruptcy court’s decision was not moot because “[w]here the
27 order appealed involves the distribution of funds and the party
28 who received the funds is a party to the appeal, the appeal is
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1 not moot because the appellate court has the power to fashion
2 effective relief.” Id. at 687 (citing Spirtos v. Moreno
3 (In re Spirtos), 992 F.2d 1004, 1006-07 (9th Cir. 1993)).
4 Undoubtedly, here, Debtor’s ultimate goal in the adversary
5 proceeding was to prevent Wells Fargo from selling the Property.
6 However, a sale to a third party has occurred, and the buyer’s
7 rights can not now be disturbed. Even so, if we reverse the
8 bankruptcy court’s order dismissing the adversary proceeding, we
9 are persuaded that the bankruptcy court could fashion some form
10 of meaningful relief for Debtor.
11 As in In re Berg, Debtor did not appeal the termination of
12 the automatic stay, the bankruptcy court’s order that allowed
13 Wells Fargo to sell the Property. Debtor is appealing the
14 dismissal of his adversary proceeding, which sought to determine
15 the extent and validity of Wells Fargo’s interest in the
16 Property, and to avoid its lien under § 544(a). If Debtor
17 prevails on his avoidance claim, the bankruptcy court could make
18 a monetary award to Debtor. See § 550(a) (if a transfer is
19 avoided, a trustee “may recover, for the benefit of the estate,
20 the property transferred, or, if the court so orders, the value
21 of such property” from the transferee) (emphasis added). And, as
22 in In re Decker, the foreclosure sale generated cash proceeds,
23 which were paid to Wells Fargo, a party to this appeal. The
24 issue of Wells Fargo’s entitlement to those proceeds remains a
25 live controversy, and depending on the outcome of the litigation,
26 Debtor could presumably benefit from recovery of proceeds.
27 Moreover, Debtor’s fourth claim to relief sought a
28 declaration from the bankruptcy court concerning the status of
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1 the debt Debtor owed Wells Fargo. In determining whether a
2 request for declaratory relief has become moot, “‘the question
3 . . . is whether the facts alleged, under all the circumstances,
4 show that there is a substantial controversy, between parties
5 having adverse legal interests, of sufficient immediacy and
6 reality to warrant the issuance of a declaratory judgment.’”
7 Pub. Utils. Comm’n of State of Cal. v. F.E.R.C., 100 F.3d 1451,
8 1458 (9th Cir. 1996) (citing Preiser v. Newkirk, 422 U.S. 395,
9 402 (1975)). The dispute over the effect of the release executed
10 by the parties on the debt secured by the Property remains a
11 sufficiently immediate and real controversy concerning Wells
12 Fargo’s and Debtor’s adverse legal interests.
13 We conclude that these appeals are not moot.
14 B. Failure to Prosecute
15 Civil Rule 41(b), made applicable in adversary proceedings
16 by Rule 7041, provides that “[i]f the plaintiff fails to
17 prosecute or to comply with these rules or a court order, a
18 defendant may move to dismiss the actions or any claim against
19 it.” In the Ninth Circuit, when considering whether to dismiss
20 an action for lack of prosecution or failure to obey court
21 orders, a bankruptcy court is instructed to weigh five factors:
22 (1) the public’s interest in expeditious resolution of
litigation;
23
(2) the court’s need to manage its docket;
24
(3) the risk of prejudice to the defendants;
25
(4) the public policy favoring the disposition of cases
26 on their merits; and
27 (5) the availability of less drastic sanctions.
28 In re Eisen, 31 F.3d at 1451 (citing Henderson v. Duncan,
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1 779 F.2d 1421, 4123 (9th Cir. 1986)); Tevis v. Cal. Dep’t of
2 Veteran Affairs (In re Tevis), BAP No. EC-15-1111-TaJuD, 2016 WL
3 3752918, *2 (9th Cir. BAP 2016). These factors are “not a series
4 of conditions precedent . . . but a way for a [bankruptcy] judge
5 to think about what to do.” In re Phenylpropanolamine (PPA)
6 Prod. Liab. Litig., 460 F.3d 1217, 1226 (9th Cir. 2006)
7 (citations omitted).
8 Here, the bankruptcy court made explicit findings and
9 conclusions and provided a detailed explanation concerning its
10 application of each of these factors. In sum, the court held
11 that the public policy in favor of disposition of cases on the
12 merits did not outweigh the other relevant factors, particularly
13 Debtor’s unreasonable delay in prosecuting the adversary
14 proceeding. Debtor argues the bankruptcy court abused its
15 discretion concerning each factor that it concluded weighed in
16 favor of dismissal. Below, we review the bankruptcy court’s
17 analysis of each factor in turn, and its ultimate conclusion.
18 1. The Expeditious Resolution of Litigation
19 A bankruptcy court must find “unreasonable delay” has
20 occurred to dismiss an adversary proceeding for lack of
21 prosecution. In re Eisen, 31 F.3d at 1451 (citing Henderson,
22 779 F.2d at 1423). We must defer to the bankruptcy court to
23 decide what is unreasonable in particular actions “because it is
24 in the best position to determine what period of delay can be
25 endured before its docket becomes unmanageable.” Id. (citations
26 omitted).
27 Debtor argues that, through Counsel, he took numerous steps
28 to prosecute this action, namely, promptly serving the summons;
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1 filing a status report; answering the Wells Fargo counter claim;
2 attending the status conference; and objecting to the notice of
3 deposition. To Debtor, any failure to prepare and submit a
4 timely Mediation Order, and not responding to “meet and confer”
5 requests by Wells Fargo, are insufficient to support a finding of
6 unreasonable delay under these facts.
7 But Debtor’s characterizations of the extent of the delays
8 miss the mark. While Debtor did take some steps to prosecute the
9 litigation in its early stages, he and Counsel engaged in more
10 delays than simply filing a late Mediation Order and declining to
11 respond to “meet and confer” requests. Indeed, the question
12 presented here is not whether Debtor engaged in delay, because he
13 undisputably did, but whether that delay was unreasonable.
14 Analyzing this question, the bankruptcy court considered
15 Debtor’s failure to timely file the mediation order, despite
16 numerous requests from Wells Fargo to do so, and his continued
17 failure to do so until after the bankruptcy court entered an
18 order indicating further delay may result in the imposition of
19 sanctions. It also detailed Counsel’s repeated and continued
20 failure to provide possible dates for the mediation, which, to
21 the court, demonstrated “a serious lack of diligence.” The
22 bankruptcy court highlighted Debtor’s failure to appear at the
23 deposition and found his attempts to be excused from doing so
24 woefully insufficient. And it also noted Debtor’s continued
25 refusal to provide new deposition dates despite the imminent
26 discovery cutoff date. Finally, the bankruptcy court concluded
27 that Counsel’s assertions regarding a possible private sale of
28 the Property did not mitigate Debtor’s unreasonable delay and
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1 were not meaningful attempts to resolve the action, because the
2 one draft agreement provided to Wells Fargo by Counsel failed to
3 contain many materials terms, and no other competent evidence
4 regarding the sale was before the court.
5 The record supports the bankruptcy court’s conclusion that,
6 taken together, these delays were unreasonable under the
7 circumstances. While some delay may have been unavoidable, here,
8 given the simple nature of the tasks assigned by the bankruptcy
9 court to Counsel and the number of delays, the Panel declines to
10 conclude that the bankruptcy court abused its discretion in
11 finding there was unreasonable delay, and that the public’s
12 interest in expeditious litigation weighed in favor of dismissal.
13 This is especially true given Wells Fargo’s active role in
14 attempting to work with Debtor and Counsel throughout the
15 process.
16 2. The Bankruptcy Court’s Need to Manage its Docket
17 This factor is usually reviewed in conjunction with the
18 first. In re Eisen, 31 F.3d at 1452. Bankruptcy courts have a
19 responsibility, and the inherent power, to control their dockets,
20 which includes the power to impose sanctions, such as, where
21 appropriate, default or dismissal. In re PPA, 460 F.3d at 1227.
22 Here, too, we afford the bankruptcy court deference because it
23 knows best when its docket could become unmanageable. Id.
24 (citation omitted).
25 The bankruptcy court explained that a party’s failure to
26 abide by the schedules and deadlines it establishes disrupts its
27 other conference and trial dates, which it must carefully
28 allocate to balance multiple pending adversary proceedings. The
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1 bankruptcy court therefore found this factor weighed in favor of
2 dismissal because Debtor’s unreasonable delay made it impossible
3 to maintain the court-ordered discovery deadline, and pretrial
4 conference and trial dates, without prejudicing Wells Fargo.
5 Debtor and Counsel question whether the bankruptcy court
6 abused its discretion by unduly considering its calendar, but
7 they fail to cite any supporting authority for this proposition.
8 On the other hand, the record shows that here, Debtor’s delays
9 prevented the parties from concluding discovery by the deadline
10 imposed by the bankruptcy court, and jeopardized the trial date.
11 Again, we decline to disturb the bankruptcy court’s
12 conclusion regarding how Debtor’s failure to comply with the
13 court’s instructions negatively impacted its docket, or its
14 decision that this factor weighed in favor of dismissal.
15 3. The Risk of Prejudice to Wells Fargo
16 “[T]he failure to prosecute diligently is sufficient by
17 itself to justify a dismissal, even in the absence of a showing
18 of actual prejudice to the defendant . . . .” In re Eisen,
19 31 F.3d at 1452 (citations omitted). However, if a plaintiff can
20 provide an excuse for its conduct that is “anything but
21 frivolous, the burden of production shifts to the defendant to
22 show at least some actual prejudice.” Id. at 1453. Trial courts
23 must exercise discretion by weighing time, excuse, and prejudice
24 to determine “whether there is sufficient delay or prejudice to
25 justify a dismissal of [Debtor’s] case.” Id.26 Debtor argues that Counsel’s serious health problems
27 experienced during this action, including the surgery and the
28 fatigue Counsel suffered during recovery, constituted a
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1 sufficient, non-frivolous excuse to shift the burden to Wells
2 Fargo to show some actual prejudice caused by any delay. And he
3 contends that if required to demonstrate prejudice, Wells Fargo
4 would have been incapable of doing so.
5 However, although the bankruptcy court expressly considered
6 Counsel’s health issues, it still found that Debtor had not
7 demonstrated a non-frivolous excuse for engaging in unreasonable
8 delay. In reaching its conclusion, the bankruptcy court stated
9 that, while it never doubted that Counsel’s health issues
10 occurred, the delays in this action could not be attributed
11 solely to Counsel’s health challenges. It noted that Counsel’s
12 original failure to lodge an order assigning the matter to
13 mediation following the October status hearing occurred well
14 before her January surgery. The bankruptcy court also pointed
15 out that Counsel’s refusal to work with Wells Fargo to select a
16 mediation date extended well past the date of Counsel’s surgery.
17 Concerning Debtor’s failure to attend the deposition, the
18 bankruptcy court acknowledged that Counsel was likely fatigued,
19 but it concluded that such explanation was an insufficient excuse
20 given the length of time between the surgery and the scheduled
21 deposition date. Moreover, even if Counsel’s illness was a
22 proper reason to postpone the deposition, she offered no
23 defensible excuse for her failure to file a proper motion seeking
24 a protective order. In addition, the bankruptcy court noted
25 Counsel’s offer to Wells Fargo to extend the discovery cutoff
26 deadline would only have resulted in further delay.
27 The bankruptcy court did not abuse its discretion in
28 deciding that Debtor failed to provide a non-frivolous excuse for
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1 his unreasonable delay, despite Counsel’s health concerns. There
2 is sufficient evidence in the record to support the bankruptcy
3 court’s conclusion that the unreasonable delay was not caused
4 solely by Counsel’s health issues. Indeed, on one occasion,
5 Counsel informed Wells Fargo that she could not cooperate in
6 scheduling a mediation because she was working on her personal
7 taxes, and on another, because she was working intensively on a
8 different case. Moreover, as the bankruptcy court found,
9 Debtor’s initial delay in complying with the court’s order
10 occurred well before her January surgery, and her delay continued
11 long after.
12 While Counsel was in the process of seeking a medical
13 diagnosis during the relevant time frame, this alone provides an
14 insufficient excuse. During this time, Wells Fargo attempted to
15 accommodate Counsel’s health concerns, including undertaking
16 portions of the responsibilities assigned to her. As for
17 Debtor’s failure to attend the deposition, Counsel voluntarily
18 declined Wells Fargo’s offer to delay the deposition.
19 Counsel’s health challenges were certainly worthy of serious
20 consideration, and the bankruptcy court did so. Though there is
21 room for debate, the Panel cannot conclude that the court abused
22 its discretion in deciding that Debtor did not provide a non-
23 frivolous reason for his unreasonable delay.6
24
6
25 The bankruptcy court made no findings or conclusions about
any prejudice Wells Fargo may have experienced as a result of
26 Debtor’s delay in prosecuting the adversary proceeding. While
27 Debtor disputes that Wells Fargo was prejudiced, and while Wells
Fargo insists that the pendency of the adversary proceeding
28 (continued...)
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1 4. Disposition of the Case on the Merits
2 “Courts weigh this factor against the plaintiff’s delay and
3 the prejudice suffered by the defendant.” In re Eisen, 31 F.3d
4 at 1454. The bankruptcy court balanced these factors and
5 ultimately determined that any interest in resolving the action
6 on the merits did not outweigh the other factors that favored
7 dismissal. No basis has been shown to disturb this holding.
8 Though the bankruptcy court acknowledged that this factor
9 weighed in favor of not dismissing the adversary proceeding,
10 Debtor dedicated a portion of his brief to arguing that, because
11 his claims are meritorious, he should be allowed to proceed to
12 trial. But to clarify, the Panel “need not scrutinize the merits
13 of a case when reviewing a dismissal.” Id. at 1447; In re Tevis,
14 2016 WL 3752918 at *4. As the Ninth Circuit has explained:
15 [w]hile the strength or weakness of the plaintiff’s
case may be a factor in determining the harshness of
16 dismissal in a particular case, the court should not
closely scrutinize the merits of an action when
17 reviewing an order of dismissal. Even if the plaintiff
has an obviously strong case, dismissal would be
18 appropriate if the plaintiff has clearly ignored his
responsibilities to the court in prosecuting the action
19 and the defendant had suffered prejudice as a result
thereof.
20
21 In re Eisen, 31 F.3d at 1454 (quoting Anderson v. Air West, Inc.,
22 542 F.2d 522, 526 (9th Cir. 1976)). Here, the bankruptcy court
23 made clear findings detailing Debtor’s delay. We decline
24 Debtor’s invitation to scrutinize the merits of the action since
25
26 6
(...continued)
27 precluded it from selling the Property, arguing that a purchaser
would not want to “buy a lawsuit,” the Panel expresses no opinion
28 on this issue.
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1 its dismissal was appropriate regardless of the strength of his
2 claims.
3 5. Less Drastic Sanctions
4 A bankruptcy court abuses its discretion “if it imposes a
5 sanction of dismissal without first considering the impact of the
6 sanction and the adequacy of less drastic sanctions.” In re PPA,
7 460 F.3d at 1228 (citations omitted). The Ninth Circuit has
8 identified three factors that indicate whether a trial court has
9 adequately considered alternatives: (1) Did the trial court
10 discuss alternative sanctions and why they were inadequate?
11 (2) Did that court implement alternative methods of sanctioning
12 before ordering dismissal? (3) Did the court warn the plaintiff
13 that dismissal was possible before ordering dismissal? Id. at
14 1228-29. Indeed, a warning that failure to obey a court order
15 will result in dismissal may alone meet the “consideration of
16 alternatives requirements.” Id. at 1229.
17 Debtor argues that the bankruptcy court abused its
18 discretion for failing to impose alternative, less drastic
19 sanctions than dismissal. We disagree.
20 Here, the bankruptcy court did not ignore its
21 responsibility, but instead, specifically discussed in its order
22 whether less drastic sanctions were appropriate. It noted that
23 though its December order warned Debtor of a possible dismissal
24 for failure to prosecute, Debtor, or Counsel, were apparently not
25 sufficiently motivated to cooperate with Wells Fargo in
26 scheduling a mediation or a deposition. It also found that, in
27 its view, monetary sanctions would not adequately compensate
28 Wells Fargo for its inability to foreclose on the Property
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1 because Debtor had already failed to make payments on the Loan
2 for almost three years,7 and, given the continued losses Debtor
3 reported in the chapter 11 case, Debtor would likely be unable to
4 pay any sanctions even had they been awarded.8
5 Moreover, the bankruptcy court did not impose an immediate
6 dismissal of the adversary proceeding in its order. Instead, the
7 bankruptcy court afforded Debtor an additional month to negotiate
8 with Wells Fargo before its order dismissing the adversary
9 proceeding would become final. To the Panel, this constitutes a
10 less drastic sanction than immediate dismissal.
11 The bankruptcy court did not abuse its discretion because it
12 carefully considered the impact of the dismissal sanction and
13 decided that less drastic sanctions would have been inadequate
14 under these facts.
15 6. Attorney Delay versus Client Delay
16 Debtor argues that the bankruptcy court abused its
17 discretion in dismissing the action because the delays were not
18 caused by Debtor, but by Counsel. The bankruptcy court correctly
19 rejected this argument, referring to the Supreme Court’s decision
20
21 7
At oral argument, Debtor contended that the bankruptcy
22 court had inappropriately considered events that had occurred
prior to the adversary proceeding. But the only record of any
23 such consideration is the bankruptcy court’s conclusion that
24 monetary sanctions would be insufficient because Debtor had
“failed to make any payments on the loan secured by the Property
25 for three years.” Such an observation is not inappropriate when
attempting to determine the likelihood of Debtor’s ability to
26 adequately compensate Wells Fargo for further delay.
27 8
According to the bankruptcy court, Debtor’s schedule J
28 showed monthly negative cash flow of approximately $500.
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1 in Link v. Wabash R.R. Co., 370 U.S. 626 (1962). There, in
2 considering the dismissal of an action for failure to prosecute,
3 the Court stated:
4 There is certainly no merit to the contention that
dismissal of petitioner’s claim because of his
5 counsel’s unexcused conduct imposes an unjust penalty
on the client. Petitioner voluntarily chose this
6 attorney as his representative in the action and he
cannot now avoid the consequences of the acts or
7 omissions of this freely selected agent.
8 Id. at 633-34; see also Tong Seae (U.S.A.), Inc. v. Edmar Corp.
9 (In re Tong Seae (U.S.A.)), Inc., 81 B.R. 593, n.4 (9th Cir. BAP
10 1988) (stating “It is clearly recognized that the ‘plaintiffs
11 cannot avoid . . . dismissal by arguing that [they are] innocent
12 part[ies] who will be made to suffer for the errors of their
13 attorney.’”) (citing Hamilton v. Neptune Orient Lines, Ltd.,
14 811 F.2d 498, 500 (9th Cir. 1987)). Here, too, Debtor cannot
15 avoid the consequences of his attorney’s acts and omissions.
16 Counsel correctly notes that the Fifth Circuit considers the
17 degree of fault attributable to parties, as opposed to their
18 counsel, in its analysis of whether to dismiss an action for
19 failure to prosecute. See Ford v. Sharp, 758 F.2d 1018, 1021
20 (5th Cir. 1985). However, under the Ninth Circuit’s test, which
21 controls here, the bankruptcy court need not engage in such an
22 analysis. The bankruptcy court applied the correct standard in
23 dismissing Debtor’s action, and given the deferential standard of
24 review to be applied here, we conclude that the bankruptcy court
25 did not abuse its discretion in declining to excuse Debtor for
26 the delays caused by Counsel.
27 VI. CONCLUSION
28 As required by the controlling authorities, we defer to the
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1 bankruptcy court’s discretion in deciding that Debtor’s adversary
2 proceeding should be dismissed. The bankruptcy court’s orders
3 are AFFIRMED.9
4
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6
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8
9
10
11
12
13
14
15
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17
18
19 9
While the bankruptcy court dismissed the adversary
20 proceeding for Debtor’s unreasonable delays in prosecuting it,
Wells Fargo argues that the bankruptcy court’s orders should also
21 be affirmed based upon Debtor’s violation of rules and court
22 orders. It correctly notes that, in addition to delay, Civil
Rule 41(b) provides that dismissal is warranted “[i]f the
23 plaintiff fails . . . to comply with these rules or a court order
. . . .” The Ninth Circuit applies the same general principles
24
to evaluate a dismissal for failure to prosecute and a dismissal
25 for violations of court orders. See In re PPA, 460 F.3d at 1226(discussing dismissal for violation of court orders);
26 In re Eisen, 31 F.3d at 1451 (discussing dismissal for failure to
27 prosecute). Because the Panel affirms the bankruptcy court’s
decision dismissing the action for delay, we need not address any
28 alternate grounds supporting that outcome.
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