In re: Ahmad J. Tukhi

FILED
1 MAY 30 2017
SUSAN M. SPRAUL, CLERK
2 U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
4 OF THE NINTH CIRCUIT
5 In re: ) BAP No. CC-16-1318-KuFL
)
6 AHMAD J. TUKHI, ) Bk. No. 8:15-bk-14015-MW
)
7 Debtor. ) Adv. No. 8:15-ap-01449-MW
______________________________)
8 )
ABDUL HABIB OLOMI, )
9 )
Appellant, )
10 )
v. ) OPINION
11 )
AHMAD J. TUKHI, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on March 23, 2017
at Pasadena, California
15
Filed – May 30, 2017
16
Appeal from the United States Bankruptcy Court
17 for the Central District of California
18 Honorable Mark S. Wallace, Bankruptcy Judge, Presiding
19 Appearances: Nikolaus W. Reed argued for appellant; Randal Paul
Mroczynski of Cooksey, Toolen, Gage, Duffy & Woog
20 argued for appellee.
21
22 Before: KURTZ, FARIS and LAFFERTY, Bankruptcy Judges.
23
24
25
26
27
28
1 KURTZ, Bankruptcy Judge:
2
3 INTRODUCTION
4 Abdul Habib Olomi appeals from a judgment dismissing his
5 nondischargeability action against chapter 71 debtor Ahmad J.
6 Tukhi. The bankruptcy court dismissed the action because Olomi
7 appeared for a pretrial conference without having filed or served
8 a pretrial stipulation as required by the bankruptcy court’s
9 Local Rule 7016-1(b) and (c). According to the bankruptcy court,
10 Olomi’s noncompliance was the result of the “fault” of his
11 counsel but was neither willful nor done in bad faith.
12 Even though this one-time act of noncompliance would have
13 resulted merely in several weeks of delay in the pretrial
14 proceedings, the bankruptcy court held that dismissal was
15 appropriate either under its Local Rule 7016-1(f) sanctioning
16 authority or as a failure to prosecute under Civil Rule 41(b)
17 (made applicable in adversary proceedings by Rule 7041). The
18 bankruptcy court’s dismissal order was an abuse of discretion.
19 The bankruptcy court did not apply the correct legal standard
20 before imposing the sanction of dismissal based on a Local Rule
21 violation. Furthermore, the facts in the record do not support
22 dismissal either based on the Local Rule violation or based on a
23 failure to prosecute.
24
1
Unless specified otherwise, all chapter and section
25 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
26 all “Rule” references are to the Federal Rules of Bankruptcy
Procedure, Rules 1001-9037. All “Civil Rule” references are to
27 the Federal Rules of Civil Procedure, and all “Local Rule”
references are to the Local Rules of the United States Bankruptcy
28 Court for the Central District of California.
2
1 Accordingly, the bankruptcy court’s judgment of dismissal is
2 VACATED, and this matter is REMANDED for completion of pretrial
3 proceedings and the setting of a trial date.
4 FACTS
5 Tukhi commenced his bankruptcy case in August 2015, and
6 Olomi timely filed a nondischargeability complaint against Tukhi
7 in November 2015. Olomi stated a single claim for relief under
8 § 523(a)(6) for a debt allegedly arising from a willful and
9 malicious injury. According to Olomi, Tukhi intentionally struck
10 him with an automobile.
11 The nondischargeability action proceeded without incident –
12 even smoothly – up until the time the parties’ joint pretrial
13 stipulation was due. In the bankruptcy court’s scheduling order
14 entered March 7, 2016, the bankruptcy court set a pretrial
15 conference date of September 28, 2016. The scheduling order
16 contained the following warning:
17 The parties are placed on notice that it is the Court’s
policy to strictly enforce the Local Bankruptcy Rules
18 relating to pre-trial conferences and this Court’s
procedures supplement to those rules, which are
19 published on the court’s website. Failure to comply
with the provisions of this order may subject the
20 responsible party to sanctions, including judgment of
dismissal or the entry of a default and a striking of
21 the answer.
22 Scheduling Order (Mar. 7, 2016) at pp. 2-3 (emphasis in
23 original).
24 The bankruptcy court obviously considered it extremely
25 important to obtain the litigants’ compliance with its pretrial
26 procedures. The scheduling order admonition was the fourth of
27 four advance warnings regarding the importance of adhering to
28 required pretrial procedures. At the initial status conference
3
1 held immediately before the scheduling order was issued, the
2 bankruptcy court stated as follows:
3 THE COURT: And the Court wishes to advise the
parties that the Court applies the Local Bankruptcy
4 Rules relating to pretrial conferences very strictly.
The Court views the pretrial conference as an
5 indispensable part of the resolution of this matter and
probably the second most important proceeding after the
6 trial itself.
7 And for that reason, it’s the Court’s practice
that if there is a material default by the plaintiff in
8 compliance with the Local Bankruptcy Rules relating to
pretrial conferences, the most likely outcome is that
9 the Court will grant judgment of dismissal in favor of
the defendant and, on the other hand, if there’s a
10 material default by the defendant, the Court’s most
likely outcome is that the Court would strike the
11 answer and enter a default.
12 These consequences are in the nature of
terminating sanctions. The Court believes that those
13 types of -- that that type of sanction is appropriate
in connection with pretrial conferences because to
14 allow a material breach of those rules and to simply
impose a monetary sanctions it could be viewed as
15 setting up a situation where there’s simply a toll
charge for violating the Local Bankruptcy Rules and I
16 don’t think that’s appropriate. So the parties are on
notice of the Court’s intentions in this regard and the
17 Court will certainly be looking to the parties to fully
comply with those Local Bankruptcy Rules.
18
19 Hr’g Tr. (Mar. 2, 2016) at 4:14-5:15.2
20 There were similar warnings about the importance of the
21 pretrial procedures in form instructions accompanying the summons
22 and in the presiding judge’s supplemental procedures set forth on
23 the court’s website. Indeed, the form instructions accompanying
24
2
Neither party included in their excerpts of record a copy
25 of the transcript from the March 2, 2016 status conference.
26 Nonetheless, we can consider the contents of this transcript,
which we obtained by accessing the bankruptcy court’s electronic
27 docket. See Franklin High Yield Tax–Free Income Fund v. City of
Stockton, Cal. (In re City of Stockton, Cal.), 542 B.R. 261, 265
28 n.2 (9th Cir. BAP 2015).
4
1 the summons stated:
2 11. Joint Pre-Trial Order. Failure to timely file a
Joint Pre-Trial order may subject the responsible party
3 and/or counsel to sanctions, which may include
dismissal of the adversary proceeding. The failure of
4 either party to cooperate in the preparation of timely
filing of a Joint Pre-Trial Conference [sic] or appear
5 at the Joint Pre-Trial Conference may result in the
imposition of sanctions under LBR 7016-1(f) or (g).
6
7 Early meeting of Counsel and Status Conference Instructions (Nov.
8 19, 2015) at ¶ 11 (emphasis in original).
9 Notwithstanding all of these warnings, and the unequivocal
10 requirement set forth in Local Rule 7016-1(b) and (c) for the
11 preparation, service and filing of a joint pretrial stipulation
12 in advance of the pretrial conference, Olomi attended the
13 pretrial conference without having first served or filed the
14 requisite pretrial stipulation. When the court asked Olomi’s
15 counsel where his pretrial stipulation was, counsel explained
16 that he had mistakenly prepared and filed instead a joint status
17 report because he was inexperienced in practicing before the
18 bankruptcy court and had misread what the “statute” required.
19 The bankruptcy court seemed to credit counsel’s explanation for
20 his noncompliance but nonetheless concluded that dismissal was
21 appropriate under Local Rule 7016-1(f)(4). The court reasoned
22 that dismissal was justified because: (1) the pretrial
23 conference and the pretrial procedures were very important;
24 (2) Olomi had been warned of that importance and of the
25 consequences for failure to comply; and (3) lesser sanctions in
26 the form of monetary sanctions would amount to nothing more than
27 a “toll charge” for violating the very important pretrial
28 procedures. The bankruptcy court reiterated the same reasoning
5
1 in its written order of dismissal.
2 Within a few days of the bankruptcy court’s dismissal
3 ruling, Olomi simultaneously filed both a notice of appeal and a
4 motion for reconsideration. Olomi explicitly based his
5 reconsideration motion on Civil Rule 60(b)(1), as made applicable
6 in bankruptcy cases pursuant to Rule 9024. Olomi maintained that
7 the court should grant him relief from his excusable neglect
8 under the factors set forth in Pioneer Investment Services v.
9 Brunswick Assocs., 507 U.S. 380, 395 (1993).
10 Olomi’s counsel filed a declaration in support of the
11 reconsideration motion in which he elaborated on his efforts to
12 comply with the court’s pretrial procedures. As Olomi’s counsel
13 put it, he and his paralegal “discussed and reviewed” the Local
14 Rules in July 2016 and prepared a draft joint pretrial
15 stipulation as well as a draft joint status report at the time.
16 However, in September 2016, when it came time to submit these
17 documents, he asserts that he only found the draft joint status
18 report on his computer, and he did not recall the Local Rule
19 requirement to file and serve the draft joint pretrial
20 stipulation. According to Olomi’s counsel, he carefully reviewed
21 the March 2016 scheduling order and also reviewed the docket, and
22 neither mentioned any deadline for filing or serving a joint
23 pretrial stipulation, so he (erroneously) thought that filing and
24 serving the joint status report would comply with the relevant
25 pretrial procedures.
26 After full briefing and a hearing, the bankruptcy court took
27 the matter under submission and ultimately issued a nine-page
28 memorandum decision and order denying the reconsideration motion.
6
1 Even though Olomi specifically asked for relief under Rule 9024
2 and Civil Rule 60(b), the bankruptcy court treated Olomi’s motion
3 as a motion to alter or amend the judgment under Rule 9023 and
4 Civil Rule 59(e). In relevant part, the bankruptcy court ruled
5 that it did not commit any manifest error of law when it
6 dismissed Olomi’s adversary proceeding. Interestingly, in making
7 this ruling, the court analyzed the dismissal as if it were based
8 on a failure to prosecute under Rule 7041 and Civil Rule 41(b);
9 in contrast, at the time of the pretrial conference, the court
10 had based the dismissal on violation of Local Rule 7016-1(c) and
11 (e) – sanctionable pursuant to Local Rule 7016-1(f).
12 In any event, after considering the additional evidence
13 submitted in support of the postjudgment motion, identifying the
14 five-part test for dismissals for failure to prosecute and
15 enhancing its findings in support of its dismissal ruling, the
16 bankruptcy court concluded that the dismissal did not constitute
17 a manifest injustice and that the postjudgment motion should be
18 denied.
19 Olomi timely appealed the judgment of dismissal, but he did
20 not file a new or amended notice of appeal from the order denying
21 his postjudgment motion.
22 JURISDICTION
23 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
24 §§ 1334 and 157(b)(2)(I), and we have jurisdiction under 28
25 U.S.C. § 158 to review the bankruptcy court’s judgment of
26 dismissal.
27 We do not have jurisdiction to review the bankruptcy court’s
28 order denying Olomi’s postjudgment motion. As the governing Rule
7
1 specifies:
2 If a party intends to challenge an order disposing of
any motion listed in subdivision (b)(1) . . . the party
3 must file a notice of appeal or an amended notice of
appeal. The notice or amended notice must . . . be
4 filed within the time prescribed by this rule, measured
from the entry of the order disposing of the last such
5 remaining motion.
6 Rule 8002(b)(3). An appellant’s failure to comply with the
7 appeal filing deadlines set forth in Rule 8002 typically deprives
8 us of jurisdiction. See Slimick v. Silva (In re Slimick), 928
9 F.2d 304, 306 (9th Cir. 1990).
10 That being said, in reviewing the bankruptcy court’s
11 judgment of dismissal, we have jurisdiction (and a duty) to
12 review any enhanced findings or “new factual determinations” the
13 bankruptcy court made in support of its original ruling – even if
14 those enhanced findings were part of the court’s ruling on a
15 postjudgment motion that never was appealed and even if the court
16 considered and relied upon evidence that was not presented until
17 after the bankruptcy court made its original ruling. Moldo v.
18 Ash (In re Thomas), 428 F.3d 1266, 1268-69 (9th Cir. 2005) (“The
19 BAP erred in concluding that it lacked jurisdiction to review the
20 bankruptcy court’s amended findings”); see also Ash v. Moldo (In
21 re Thomas), 2006 WL 6811032 at *4-7 (9th Cir. BAP 2006) (on
22 remand from Circuit, holding that bankruptcy court’s amended
23 findings were clearly erroneous based on evidence submitted to
24 the court as part of postjudgment proceedings).
25 ISSUE
26 Did the bankruptcy court abuse its discretion when it
27 dismissed Olomi’s nondischargeability action?
28
8
1 STANDARDS OF REVIEW
2 We review a bankruptcy court’s local-rules based dismissal
3 for an abuse of discretion. Lee v. Roessler-Lobert (In re
4 Roessler-Lobert), ___ B.R. ___, 2017 WL 2189520, *4 (9th Cir. BAP
5 May 15, 2017). We similarly review a bankruptcy court’s
6 dismissal for lack of prosecution. Omstead v. Dell, Inc., 594
7 F.3d 1081, 1084 (9th Cir. 2010); Moneymaker v. CoBEN (In re
8 Eisen), 31 F.3d 1447, 1451 (9th Cir. 1994).
9 We employ a two-part test to determine whether the
10 bankruptcy court abused its discretion. United States v.
11 Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009) (en banc).
12 First, we review de novo whether the bankruptcy court identified
13 and applied the correct legal rule. Id. Second, we examine the
14 bankruptcy court’s factual findings under the clearly erroneous
15 standard. Id. at 1262 & n.20. We must affirm the bankruptcy
16 court’s factual findings unless they were “(1) illogical, (2)
17 implausible, or (3) without support in inferences that may be
18 drawn from the facts in the record.” Id. (internal citations
19 omitted).
20 DISCUSSION
21 A. Dismissal Based On Local Rule Violation
22 In its original dismissal ruling, the bankruptcy court
23 relied on one of the sanctions provisions in its Local Rules -
24 Local Rule 7016-1(f)(4). On its face, that Local Rule authorized
25 the bankruptcy court to dismiss Olomi’s action based on his
26 violation of Local Rule 7016-1(b) and (c), which imposed a duty
27 on Olomi as the plaintiff to prepare, sign and serve a draft
28 pretrial stipulation.
9
1 This Panel has held that dismissal sanctions based on local
2 rule violations must be supported by a finding of a degree of
3 culpability higher than mere negligence or fault, such as
4 “willfulness, bad faith, recklessness, or gross negligence” or a
5 “repeated disregard of court rules.” In re Roessler-Lobert, ___
6 B.R. ___, 2017 WL 2189520, *10; see also Kostecki v. Sutton (In
7 re Sutton), 2015 WL 7776658, at *8 (Mem. Dec.) (9th Cir. BAP Dec.
8 3, 2015); Taylor v. Singh (In re Singh), 2016 WL 770195, at *4-5
9 (Mem. Dec.) (9th Cir. BAP Feb. 26, 2016).
10 In so holding, In re Roessler-Lobert relied on Zambrano v.
11 City of Tustin, 885 F.2d 1473, 1480 (9th Cir. 1989). In addition
12 to requiring the above-referenced finding assessing the
13 culpability and/or state of mind of the rule violator, Zambrano
14 indicated that any sanctions order based on a local rule
15 violation needed to be “proportionate to the offense and
16 commensurate with principles of restraint and dignity inherent in
17 judicial power.” Zambrano, 885 F.2d at 1480. The bankruptcy
18 court also needed to consider: “(1) the public’s interest in
19 expeditious resolution of litigation; (2) the court’s need to
20 manage its docket; (3) the risk of prejudice to the defendants;
21 (4) the public policy favoring disposition of cases on their
22 merits[;] and (5) the availability of less drastic sanctions.”
23 In re Roessler-Lobert, ___ B.R. ___, 2017 WL 2189520, *5, 10
24 (citing Henderson v. Duncan, 779 F.2d 1421, 1423 (9th Cir.
25 1986)).
26 The bankruptcy court, here, did not consider the three-part
27 Zambrano test. Prejudgment, the court did not consider the
28 culpability or state of mind of Olomi or his counsel, nor did the
10
1 court apply the traditional five-factor dismissal sanctions
2 standard originating from Henderson. In addition, nothing in the
3 court’s comments indicated that it ever considered, pre- or
4 postjudgment, whether the dismissal sanction was proportionate to
5 the offense.
6 Zambrano and In re Roessler-Lobert indicate that we may
7 review the record ourselves and independently determine whether
8 the record supported the bankruptcy court’s sanctions ruling.
9 Zambrano, 885 F.2d at 1484 & n.32; In re Roessler-Lobert, ___
10 B.R. ___, 2017 WL 2189520, *5. But the prejudgment record is
11 inadequate to support dismissal under Zambrano and In re
12 Roessler-Lobert. At the time of the pretrial conference, there
13 was no prior history in the adversary proceeding of any delay or
14 noncompliance, and Olomi’s counsel only stated that he had not
15 filed the required pretrial stipulation because he had misread
16 the rules and had thought a joint status report would be
17 sufficient. Thus, absent a finding that Olomi’s counsel’s
18 explanation was not credible, the record as it existed at that
19 time essentially precluded a finding of culpability sufficient to
20 support dismissal under Zambrano and In re Roessler-Lobert. The
21 same record limitations effectively would have made it impossible
22 to find that dismissal was proportionate to the offense or
23 commensurate with judicial restraint.
24 Postjudgment, in the process of denying Olomi’s
25 reconsideration motion, the bankruptcy court specifically
26 considered whether Olomi’s noncompliance was the result of
27 willfulness, bad faith or fault, and the court explicitly
28 determined that “Plaintiff’s failure [was] due to fault.” Mem.
11
1 Dec. (Nov. 10, 2106) at 6:25. As stated above, mere “fault” is
2 insufficient under Zambrano and In re Roessler-Lobert to justify
3 sanctions for violation of a Local Rule. Nor does the additional
4 evidence in the record regarding Olomi’s attempts to comply with
5 pretrial procedures persuade us that the record could have
6 supported a gross negligence, recklessness or willfulness
7 finding.
8 In short, the prejudgment record was insufficient under
9 Zambrano and In re Roessler-Lobert to support the bankruptcy
10 court’s dismissal sanction based on a local rule violation, and
11 none of the additional evidence presented or enhanced findings
12 made postjudgment cured that insufficiency.
13 B. Dismissal Based On A Delay In Prosecution
14 As stated in the facts section, supra, the bankruptcy court
15 offered a different legal basis for its dismissal sanction when
16 it ruled on Olomi’s reconsideration motion. According to the
17 court’s ruling denying the reconsideration motion, dismissal was
18 appropriate under Civil Rule 41(b) as made applicable in
19 adversary proceedings by Rule 7041. The elements for a Civil
20 Rule 41(b) dismissal for failure to prosecute are different than
21 those set forth above for a dismissal for violation of local
22 court rules. See In re Roessler-Lobert, ___ B.R. ___, 2017 WL
23 2189520, *5, 10. Dismissal for failure to prosecute must be
24 supported by a showing of unreasonable delay and by consideration
25 of the five Henderson factors. Id. While no showing of
26 heightened culpability is required, the delaying party’s mental
27 state typically is relevant, and the bankruptcy court should
28 consider any excuse offered by the delaying party in the process
12
1 of determining whether the delay was unreasonable and whether
2 there is a risk of prejudice to the adverse party. Id. at *5 &
3 n.8.
4 Even though Olomi did not appeal the bankruptcy court’s
5 order denying his reconsideration motion, we will look at the
6 bankruptcy court’s postjudgment findings on each of the five
7 Henderson factors, and we will consider all of the evidence
8 before the court at the time those findings were made. See In re
9 Thomas, 428 F.3d at 1268-69.
10 1. The Public’s Interest In Expeditious Resolution of
11 Litigation
12 The bankruptcy court found that the public’s interest in the
13 expeditious resolution of litigation lightly militated in favor
14 of dismissal. The bankruptcy court acknowledged that the
15 expeditious resolution of litigation was implicated by Olomi’s
16 noncompliance only to the extent that the noncompliance resulted
17 in a delay in the resolution of the litigation. As the
18 bankruptcy court explained, the pretrial conference would have
19 been delayed by roughly four to six weeks, so the bankruptcy
20 court determined that this amount of delay implicated the
21 public’s interest in expeditious litigation resolution only in a
22 minor way.
23 While we admit to having some doubt that the noncompliant
24 conduct at issue herein would have had any impact on the timing
25 of the ultimate resolution of Olomi’s action, the Ninth Circuit
26 requires us to give significant deference to the bankruptcy
27 court’s assessment of whether the delay implicated the public
28 interest because the bankruptcy court is in the best position to
13
1 determine what amount of delay reasonably can be endured. In re
2 Eisen, 31 F.3d at 1451; Tenorio v. Osinga (In re Osinga), 91 B.R.
3 893, 895 (9th Cir. BAP 1988).
4 Based on this deference, and on the undisputed fact that
5 Olomi’s failure to file and serve the pretrial stipulation would
6 have delayed the pretrial conference by several weeks, we hold
7 that the bankruptcy court’s finding on the first Henderson factor
8 was not clearly erroneous.
9 2. The Court’s Need To Manage Its Docket
10 The bankruptcy court found that its need to manage its
11 docket militated strongly in favor of dismissal. The court noted
12 that material noncompliance with Local Rule 7016-1 was fairly
13 common notwithstanding the routine warnings the court gave at
14 status conferences and in scheduling orders regarding the
15 importance of the pretrial procedures. In essence, the court
16 reasoned that not issuing terminating sanctions when the litigant
17 completely failed to file or serve a pretrial stipulation would
18 encourage a relaxed and cavalier attitude towards the pretrial
19 stipulation requirement, which in turn would materially
20 contribute to additional congestion on the court’s already busy
21 docket.
22 Again, the Ninth Circuit has counseled that appellate courts
23 generally should defer to the bankruptcy court’s assessment of
24 what action is needed to facilitate the court’s management of its
25 own docket. In re Eisen, 31 F.3d at 1452; see also Yourish v.
26 Cal. Amplifier, 191 F.3d 983, 991 (9th Cir. 1999) (“Because the
27 district judge was in a superior position to evaluate the effects
28 of delay on her docket, . . . we find that this factor strongly
14
1 favors dismissal.”). Based on this deference and on the
2 indisputable delay in the pretrial proceedings, we hold that the
3 bankruptcy court’s finding on the second Henderson factor was not
4 clearly erroneous.
5 3. The Risk Of Prejudice To The Defendant
6 The bankruptcy court found that the four- to six-week delay
7 in the pretrial proceedings constituted a risk of prejudice to
8 Tukhi because the delay in pretrial proceedings might impede
9 Tukhi’s enjoyment of his fresh start. The court essentially
10 determined that the unreasonable delay caused by Olomi’s failure
11 to file and serve the pretrial stipulation created a risk of
12 interference with Tukhi’s ability quickly to go to trial and
13 thereafter enjoy the full benefit of his chapter 7 discharge.
14 Because the length of the delay was relatively minor, the
15 bankruptcy court concluded that this factor only lightly
16 militated in favor of dismissal.
17 We agree with the bankruptcy court to a point. We agree
18 that a significant delay in resolution of litigation caused by a
19 litigant’s unreasonable conduct can cause prejudice to the
20 adverse party under certain circumstances. See Malone v. United
21 States Postal Serv., 833 F.2d 128, 131 (9th Cir. 1987). This is
22 particularly true in bankruptcy cases, when the litigation
23 involves an exception to discharge claim, which clouds the
24 debtor’s fresh start by its mere existence. In re Osinga, 91
25 B.R. at 895; see also Tong v. Sandwell (In re Sandwell), 2005 WL
26 6960219, at *5 (Mem. Dec.) (9th Cir. BAP June 13, 2005).
27 However, the record here does not support the bankruptcy
28 court’s risk of prejudice finding. The contents of the joint
15
1 status report presented to the court at the time of the pretrial
2 hearing – and resubmitted to the court as part of Olomi’s papers
3 in support of his reconsideration motion – reflect that Tukhi was
4 advocating for a continuance of the pretrial conference until at
5 least January 2017 and for trial not to be set before February
6 2017. The status report further indicates that Tukhi’s
7 scheduling issues were being driven by the congestion of his
8 counsel’s trial calendar. When, as here, the debtor Tukhi was
9 advocating for even greater delay in the resolution of the
10 nondischargeability action, it is illogical to conclude that
11 Tukhi was at risk of being prejudiced by a brief delay resulting
12 from the plaintiff Olomi’s isolated incident of noncompliance
13 with pretrial procedures.3
14 We therefore hold that the bankruptcy court’s finding on the
15 third Henderson factor was clearly erroneous.
16 4. The Public Policy Favoring Disposition Of Cases On
17 Their Merits
18 The bankruptcy court conceded that this factor militated
19 against dismissal, but the court posited that the force of this
20 factor was attenuated because Olomi’s conduct was impeding the
21 progress of the case towards a merits resolution. The two
22
23
3
For purposes of prejudice, it also is worth noting that
24 Local Rule 7016-1(e)(2) prescribes procedures parties other than
plaintiff must take when the plaintiff fails to comply with the
25 pretrial stipulation requirement. It is undisputed here that
26 Tukhi did not follow these procedures. If Tukhi had been
concerned about potential prejudice arising from the delay caused
27 by Olomi’s failure to file and serve the pretrial stipulation,
Tukhi could have helped to keep the matter on track by filing and
28 serving the declaration prescribed in Local Rule 7016-1(e)(2).
16
1 decisions on which the bankruptcy court relied for this point
2 involved severe obstacles to merits determinations caused by the
3 plaintiff’s noncompliant conduct over an extended period of time.
4 Allen v. Bayer Corp. (In re Phenylpropanolamine (PPA) Prod. Liab.
5 Litig.), 460 F.3d 1217, 1237 (9th Cir. 2006) (“failure to comply
6 with [case management order] obligations brought these MDL
7 actions to a standstill”); Alonzo v. City of L.A., No. CV
8 14–05636–RGK (Minute Order) (C.D. Cal. July 24, 2015) (“Plaintiff
9 failed to produce documents which are necessary for Defendant to
10 adequately litigate this case.”). Here, in contrast, Olomi’s
11 one-time act of neglect in failing to file and serve a pretrial
12 stipulation did not present anything close to the type of severe
13 impediment to litigation on the merits that was at issue in Allen
14 and Alonzo. Simply put, there was nothing in the record to
15 differentiate the case at bar from the majority of cases in which
16 this factor militates decidedly against dismissal. See, e.g.
17 Yourish, 191 F.3d at 992; Hernandez v. City of El Monte, 138 F.3d
18 393, 399 (9th Cir. 1998); Malone, 833 F.2d at 133 n.2; see also
19 Gonzalez v. Kitay (In re Kitay), 2015 WL 8550637 at *9 (Mem.
20 Dec.) (9th Cir. BAP Dec. 10, 2015) (“The fourth factor, whether
21 public policy favors disposition of the case on the merits,
22 normally weighs strongly against dismissal.”).
23 Thus, the bankruptcy court’s finding on the fourth Henderson
24 factor was clearly erroneous. The policy in favor of litigation
25 on the merits strongly militated against dismissal of Olomi’s
26 nondischargeability action, and the bankruptcy court’s finding
27 that this factor only weakly militated against dismissal was
28 illogical and not supported by the record.
17
1 5. Availability Of Less Drastic Sanctions
2 In its memorandum decision denying Olomi’s reconsideration
3 motion, the bankruptcy court elaborated on its reasoning why
4 alternative lesser sanctions were “unavailable.” The court
5 admitted that alternatives “are always available,” but it
6 considered such alternatives unwise, inappropriate and improper.
7 The bankruptcy court engaged in a slippery-slope type of analysis
8 in which it concluded that, if it imposed lesser, monetary
9 sanctions against Olomi, pretty soon all litigants would be free
10 to ignore the pretrial stipulation requirement, “knowing that the
11 worst that would happen to them is that they would be required to
12 pay a toll charge in the form of a monetary sanction for this
13 privilege.” Mem. Dec. (Nov. 10, 2016) at 8:13-15.
14 Aside from the logical fallacy evident in the court’s
15 reasoning, the court’s analysis incorrectly emphasized the
16 perceived systemic impact of a more lenient approach to
17 sanctions, instead of focusing on the potential of alternative
18 lesser sanctions to secure future compliance from Olomi. See In
19 re Singh, 2016 WL 770195 at *9-10 (rejecting a similar
20 alternative lesser sanctions analysis that emphasized systemic
21 concerns over what was needed on a case-specific basis to secure
22 litigant compliance).
23 Here, Olomi had no prior history of noncompliance. While
24 his efforts to ascertain and follow the court’s pretrial
25 procedures were clearly inadequate, there is nothing in the
26 record to indicate that a monetary/compensatory sanction would
27 have been insufficient to obtain his future compliance.
28 Consequently, the bankruptcy court’s finding on the fifth
18
1 Henderson factor was clearly erroneous.4
2 Additionally, the bankruptcy court’s emphasis on the
3 perceived systemic effect of a more lenient approach to sanctions
4 rendered its dismissal sanction wholly disproportionate to
5 Olomi’s one-time act of noncompliance. A dismissal sanction
6 cannot ever really satisfy the fifth Henderson factor without
7 some thought given to the proportionality of the sanction to the
8 misconduct. See In re Roessler-Lobert, ___ B.R. ___, 2017 WL
9 2189520, *10 & n.13 (noting that concept of proportionality is
10 largely subsumed within the fifth Henderson factor).
11 6. Results From Application Of The Henderson Factors
12 Only the first two of the five Henderson factors militated
13 in favor of dismissal. There was no demonstration of a genuine
14 risk of prejudice to Tukhi, nor were effective alternative lesser
15 sanctions shown to be unavailable. Furthermore, the policy
16 favoring decisions on the merits strongly militated against
17 dismissal.
18 At bottom, the bankruptcy court appears to have given
19 inordinate weight to its concern over its overcrowded docket and
20 the systemic effect a more lenient sanctions policy might have on
21
4
Sometimes, a prior warning that noncompliance will result
22
in dismissal can serve as a substitute to consideration of
23 alternative lesser sanctions. Yourish, 191 F.3d at 992; see also
Pagtalunan v. Galaza, 291 F.3d 639, 643 (9th Cir. 2002). This
24 substitution theory apparently is based on the notion that the
threat of dismissal is, itself, a form of alternative lesser
25 sanction, and if that does not secure compliance, the trial court
26 has discharged its duty to consider alternative lesser sanctions.
Pagtalunan, 291 F.3d at 643. But this substitute to considering
27 alternative lesser sanctions typically applies only when the
dismissal warnings were made in response to prior noncompliance.
28 Id.; Yourish, 191 F.3d at 992.
19
1 its ability quickly and efficiently to move cases on its docket
2 towards resolution. We sympathize with the bankruptcy court’s
3 palpable frustration with litigants who do not pay adequate
4 attention to court procedures and the very real impact their
5 inattention has on the court’s ability expeditiously to
6 administer justice. Even so, that sympathy does not permit us to
7 gloss over the established legal standards for imposing
8 terminating sanctions on plaintiffs.
9 In sum, the bankruptcy court abused its discretion in
10 dismissing Olomi’s nondischargeability action based either on his
11 violation of Local Rule 7016-1(b) and (c) or on his delay in
12 prosecution of the adversary proceeding.
13 CONCLUSION
14 For the reasons set forth above, the bankruptcy court’s
15 judgment dismissing Olomi’s adversary proceeding is VACATED, and
16 this matter is REMANDED for completion of pretrial proceedings
17 and the setting of a trial date.
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