Martinez v. Los Alamos National Bank (In Re Martinez)

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
MAR 22 2005
TENTH CIRCUIT
PATRICK FISHER
Clerk
In re: DANNY S. MARTINEZ and
KATHERINE F. MARTINEZ,
Debtors,
----------------------------------- No. 04-2040
(D. N.M.)
DANNY S. MARTINEZ; (D.Ct. No. CIV-02-1315-LH/WWD)
KATHERINE F. MARTINEZ,
Appellants,
v.
LOS ALAMOS NATIONAL BANK,
Appellee.
ORDER AND JUDGMENT *
Before TACHA, Chief Circuit Judge, and PORFILIO and BRORBY, Senior
Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
*
This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1.9(G). The case is
therefore ordered submitted without oral argument.
Appellants Danny S. Martinez and Katherine F. Martinez, husband and
wife, represented by counsel, appeal the district court’s decision affirming the
bankruptcy court’s summary judgment decision and judgment in an adversary
bankruptcy proceeding. The Martinezes contend the bankruptcy court erred in
granting summary judgment to Appellee Los Alamos National Bank (the Bank) in
denying discharge of their debt, under 11 U.S.C. § 727(a)(6)(C), for failure to
comply with the bankruptcy court’s order compelling discovery. The Martinezes
also appeal certain other district court orders concerning items they designated on
appeal to the district court and which it struck from the record. We exercise
jurisdiction pursuant to 28 U.S.C. § 158(d) and § 1291 and affirm the district
court’s decision and orders.
I. BACKGROUND
Certain facts are not in dispute. On May 23, 2001, the Martinezes filed for
Chapter 11 bankruptcy protection, after being sued by the Bank over certain loans
transacted by Ms. Martinez. Ms. Martinez is a former mortgage loan officer at
the Bank. At the time the Martinezes filed their bankruptcy case, the Bank no
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longer employed Ms. Martinez and she was the subject of a federal investigation
into suspected embezzlement from the Bank.
Pursuant to Federal Rule of Bankruptcy Procedure 2004, the Bank
successfully filed a motion, as a party in interest, for a court order to examine the
Martinezes by deposition. See Fed. R. Bankr. P. 2004(a). In September 2001,
when the Bank attempted to take the Martinezes’ depositions, they invoked their
Fifth Amendment privilege against self-incrimination and refused to answer many
of the questions posed. Thereafter, on October 10, 2001, the Bank filed a motion
with the bankruptcy court for an order compelling the Martinezes to comply with
the court’s previous discovery order.
On February 13, 2002, Ms. Martinez received a federal indictment for five
counts of bank fraud, six counts of money laundering promotion, six counts of
money laundering concealment, and two counts of money laundering under 18
U.S.C. § 1957. On March 22, 2002, the bankruptcy court entered an order and
opinion granting in part and denying in part the Bank’s motion to compel answers
to certain deposition questions and production of documents, hereinafter referred
to as the Order to Compel. After analyzing each question, the bankruptcy court
found the Martinezes asserted a reasonable fear of future prosecution and validly
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invoked their Fifth Amendment privileges on most of the Bank’s questions.
However, it found their Fifth Amendment privilege did not extend to questions on
their possible claims against the Bank and its Chief Executive Officer, Mr. Enloe,
for defamation and $60,000 allegedly owed Ms. Martinez by Mr. Enloe. The
bankruptcy court then ordered the Martinezes to answer specific questions asked
of them in their prior depositions related to those claims. 1 The Martinezes did not
1
The bankruptcy court ordered Ms. Martinez to answer the following material
questions, which she later refused to answer, again invoking her Fifth Amendment
privilege:
1) “You show ... there are claims ... you and your husband have against [the
Bank] and [Mr.] Enloe. Can you tell me about those?”
2) “Can you ... tell me what you think the value of those claims are?”
3) “No. 30, all documents which support your claim of a debt of [Mr.]
Enloe to [you] in the amount of $60,000. That folder was empty. Do you
have any documents that support that claim?”
4) “No. 31, all documents which support your claims against [the Bank] and
[Mr.] Enloe under Schedule B20. Do you have any documents which
support that claim?”
5) “Other than these documents produced in Exhibit 53, are there any other
documents that you claim support your claim against [the Bank] and Mr.
Enloe?”
The bankruptcy court ordered Mr. Martinez to answer the following material
questions, which he later refused to answer, again invoking his Fifth Amendment
privilege:
1) “On [Schedule] B17, you show an asset of this bankruptcy case, a debt of
[Mr.] Enloe to Katherine Martinez for $60,000. Can you tell me what the
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appeal the Order to Compel or take any other action to reverse it or stay its
implementation.
On June 20, 2002, the Bank resumed the Martinezes’ depositions, at which
time they both acknowledged they had read the bankruptcy court’s Order to
Compel and supporting opinion, and understood the Order directed them to
answer certain questions which they previously refused to answer. However, Ms.
Martinez reasserted her Fifth Amendment privilege and refused to answer five of
the six questions the bankruptcy court ordered her to answer. Similarly, Mr.
Martinez refused to answer at least four of the questions the court ordered him to
answer, also invoking his Fifth Amendment privilege.
basis of that is?”
2) “[W]ith respect to Schedule B No. 20 where you tell the bankruptcy court
that you have another asset, will you be answering any questions about the
claims listed ... against [the Bank] and [Mr.] Enloe?”
3) “My Request No. 30, I asked for all documents which support your claim
of a debt of [Mr.] Enloe to Katherine Martinez in the amount of $60,000.
Do you have any documents in support of that claim?”
4) “In Request No. 31, I ask for all documents which support your claims
against [the Bank] and [Mr.] Enloe. Do you have any documents which
support that claim?”
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On June 27, 2002, the Bank filed a complaint in a bankruptcy adversary
proceeding to deny discharge of the Martinezes’ debt, under 11 U.S.C.
§ 727(a)(6)(A) and (C), based on their “wilful and intentional” failure to respond
to material questions in compliance with the court’s Order to Compel. On July
29, 2002, the Martinezes answered the complaint in the adversary proceeding,
reinvoking their Fifth Amendment privilege.
On August 2, 2002, the Bank filed a motion for summary judgment and
memorandum in support thereof, requesting the bankruptcy court deny the
Martinezes’ discharge as a matter of law, pursuant to 11 U.S.C. § 727(a)(6)(C),
for wilful and intentional refusal to respond to material questions approved by the
court. 2 The motion for summary judgment was supported by various pleadings
and exhibits. The Martinezes responded to the motion for summary judgment by
reinvoking their Fifth Amendment privilege and denying they wilfully and
intentionally refused to answer certain material questions in violation of
§ 727(a)(6)(C).
2
The Bank also requested summary judgment, pursuant to another section, 11
U.S.C. § 727(a)(6)(A), for wilful and intentional refusal to obey a lawful order of the
court, by refusing to obey the court’s order for a handwriting sample. This issue was not
part of the Martinezes’ appeal to the district court, and therefore, is not before this court.
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On July 2, 2002, during the period in which the Bank filed its motion for
summary judgment in the adversary proceeding, it also filed a second motion to
compel in the main bankruptcy proceeding, asking for another order to compel the
Martinezes to answer the deposition questions concerning their claims against the
Bank and Mr. Enloe and to produce certain documents, and asking for an order
requiring a paralegal to testify and supply documents the Martinezes gave her
related to financial and business records. On August 19, 2002, the bankruptcy
court held a hearing on the Bank’s second motion to compel in the main
bankruptcy proceeding. At the hearing, the parties almost exclusively focused on
the paralegal’s refusal to answer or produce documents that the Bank claimed the
Martinezes provided to her and which she claimed as work product. During the
hearing, the bankruptcy court noted Ms. Martinez’s criminal trial was to be held
in three weeks, and that if it did decide to require the Martinezes to answer or
produce anything in conjunction with the Bank’s second motion to compel, it
would do so at the conclusion of the criminal trial. 3
Thereafter, on August 28, 2002, the bankruptcy court held a hearing on the
Bank’s motion for summary judgment in the adversary proceeding, but neither
3
The district court struck this transcript from the record on appeal, which the
Martinezes have appealed and reinserted in the record before us. Our reliance on the
transcript is explained hereinafter.
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party requested a stay of the summary judgment pending developments in the
criminal case. A day later, on August 29, 2002, the Martinezes’ attorney sent the
bankruptcy court a letter, informing it Ms. Martinez had signed a guilty plea in
her criminal case, the plea was contingent on acceptance by the district court after
completion of a presentencing report, and he believed it would make “sense for
the Court to withhold its ruling on [the Bank’s second] Motion to Compel until
the conclusion of the sentencing hearing. In the likely event [the judge] accepts
the plea agreement, [the Bank’s second] Motion to Compel will be moot.” 4
However, the Martinezes again did not informally or formally file a motion or
request to stay the summary judgment proceeding pending any other developments
in the criminal case.
On October 8, 2002, the bankruptcy court granted the Bank’s summary
judgment motion, concluding the Martinezes violated 11 U.S.C. § 727(a)(6)(C),
by wilfully failing and refusing to answer questions the bankruptcy court
previously approved and ordered them to answer after determining a Fifth
Amendment privilege did not extend to those questions. It further determined the
Martinezes’ reassertion of their Fifth Amendment privilege following its Order to
4
This letter is one of the items which the district court struck from the record on
appeal, which the Martinezes appeal and have reinserted in the record on appeal before
us. Our reliance on this letter is explained hereinafter.
-8-
Compel was invalid. Following its grant of summary judgment to the Bank, the
bankruptcy court entered a judgment denying the Martinezes’ discharge pursuant
to § 727(a)(6)(C). 5
The Martinezes elected to appeal the result of the adversary proceeding to
the district court, raising several issues concerning the propriety of the bankruptcy
court’s grant of summary judgment to the Bank. However, in their notice of
appeal, the Martinezes did not identify the bankruptcy court’s March 22, 2002
Order to Compel, which resolved their Fifth Amendment privilege claims, as an
order which they intended to appeal. 6
In their designated record on appeal to the district court, the Martinezes
submitted various pleadings, which the Bank moved to strike, contending they
were late-filed and contained pleadings from the main bankruptcy case, another
adversary proceeding, and a criminal case which were not before the bankruptcy
court in making its summary judgment decision. In an order striking items
designated by the Martinezes and objected to by the Bank, the district court found
5
It is unclear from the record what, if any, further action occurred on the Bank’s
second motion to compel in the main bankruptcy proceeding. On January 17, 2003, the
district court accepted Ms. Martinez’s guilty plea and sentenced her.
6
The Martinezes’ Notice of Appeal specifically appealed only the October 8,
2002 judgment and order granting the Bank’s motion for summary judgment.
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these items, including the August 29, 2002 letter from their attorney advising Ms.
Martinez entered into a guilty plea, were not presented to the bankruptcy judge in
response to the motion for summary judgment in the adversary proceeding.
Instead, the district court pointed out that the grant of summary judgment was
based on the Martinezes’ failure to comply with the Order to Compel requiring
their testimony, which they did not appeal or otherwise challenge.
Thereafter, the Martinezes filed a motion to clarify the order, noting that
the bankruptcy clerk, in response to the court’s order, improperly removed two
transcripts—one from a January 10, 2002 hearing, 7 and the other from the August
19, 2002 hearing on the Bank’s second motion to compel—neither of which the
Bank previously objected to, nor were referred to in the court’s order to strike.
They requested an order restoring the transcripts of those hearings into the record.
The district court issued an order summarily holding the bankruptcy clerk
appropriately removed the two hearing transcripts from the record and denying
the Martinezes’ request to restore them to the record on appeal.
7
Because the Martinezes fail to discuss the January 10, 2002 hearing in their brief
on appeal, and instead argue exclusively in support of consideration of the August 19,
2002 hearing, we consider waived any issue relating to striking or exclusion of the
January 10, 2002 transcript from the record. See Gen. Elec. Capital Corp. v. Manager of
Revenue (In Re W. Pac. Airlines, Inc.), 273 F.3d 1288, 1293 (10th Cir. 2001).
-10-
Following the district court’s orders on the appeal record, the federal
magistrate judge issued his proposed findings and recommendation, addressing
the summary judgment issues raised by the Martinezes and recommending the
district court affirm the bankruptcy court’s decision. After considering the
Martinezes’ objections thereto, the district court adopted the magistrate judge’s
proposed findings and recommendation and dismissed the Martinezes’ appeal with
prejudice.
II. DISCUSSION
The Martinezes now appeal the district court’s decision affirming summary
judgment, and its two orders concerning the record they designated on appeal.
The crux of their issues concerns the bankruptcy court’s summary judgment
determination, in which they claim: 1) disputed issues of fact exist precluding
summary judgment on whether their refusal to answer questions under the Fifth
Amendment was wilful or intentional; 2) the bankruptcy court either erred as a
matter of law or abused its discretion in granting summary judgment in violation
of their constitutional rights against self-incrimination under the Fifth
Amendment; and 3) the bankruptcy court erred in basing summary judgment on
their failure to challenge or appeal the Order to Compel, which they claim was an
unappealable discovery order. With respect to the district court, they contend it
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erred in affirming the grant of summary judgment, and limiting the record when it
struck certain items from the record, including their attorney’s August 29, 2002
letter and the August 19, 2002 hearing transcript, which they claim establish the
bankruptcy court improperly granted summary judgment without first ruling on
the Bank’s second motion to compel discovery.
We address each issue separately, beginning with our standard of review.
We review the bankruptcy court’s grant of summary judgment de novo, affording
no deference to the district court’s decision. Bailey v. Big Sky Motors, Ltd. (In re
Ogden), 314 F.3d 1190, 1195 (10th Cir. 2002). Our summary judgment standard
under Federal Rule of Civil Procedure 56 is applicable to bankruptcy adversary
proceedings. See id. (relying on Fed. R. Bank. P. 7056). “[S]ummary judgment is
warranted if ‘there is no genuine issue as to any material fact and ... the moving
party is entitled to a judgment as a matter of law.’” Id. (quoting Fed. R. Civ. P.
56). “Under this standard, we view the evidence and draw reasonable inferences
therefrom in the light most favorable to the nonmoving party.” Id.With the standard of review in mind, we proceed with the law applicable to
nondischarge of debt in a bankruptcy adversary proceeding, including issues
relating to noncompliance with discovery orders and invocation of the Fifth
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Amendment privilege. To begin, “[t]he purpose of the Bankruptcy Code is to
provide the honest, but unfortunate debtor a fresh start.” Dalton v. IRS (In re
Dalton), 77 F.3d 1297, 1300 (10th Cir. 1996). Congress has described the
discharge provision under 11 U.S.C. § 727 as the “heart of the fresh start
provisions of the bankruptcy law.” Rosen v. Bezner, 996 F.2d 1527, 1531 (3d Cir.
1993) (relying on H.R. Rep. No. 595, 95th Cong., 1st Sess. 384 (1977) (quotation
marks omitted)). However, under 11 U.S.C. § 727(a)(6), a debtor’s failure to
comply with a bankruptcy court’s discovery order can be an independent ground
for denying discharge of a debt. See 6 Collier on Bankruptcy ¶ 727.09[1] & [3],
at 727-50 to -52 (Alan N. Restnick & Henry J. Sommer, eds., 15th ed. rev. 2003).
Specifically, the bankruptcy court may deny a debtor a discharge if he or she has
“refused” to obey a lawful order of the court. See 11 U.S.C. § 727(a)(6). 8 The
8
Section 727(a)(6) states:
(a) The court shall grant the debtor a discharge, unless–
....
(6) the debtor has refused, in the case–
(A) to obey any lawful order of the court, other than an order to respond to a
material question or to testify;
(B) on the ground of privilege against self-incrimination, to respond to a
material question approved by the court or to testify, after the debtor has
been granted immunity with respect to the matter concerning which such
privilege was invoked; or
(C) on a ground other than the properly invoked privilege against self-
incrimination, to respond to a material question approved by the court or to
testify.
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word “refuse,” in the context of § 727(a)(6), “requires the Court to go further than
to simply find that a debtor failed to comply with a discovery request. Rather, it
must find that the disobedience was willful or intentional.” D’Agnese v. Cotsibas
(In re Cotsibas), 262 B.R. 182, 186 (Bankr. D. N.H. 2001). See also Law Offices
of Dominic J. Salfi v. Prevatt (In re Prevatt), 261 B.R. 54, 60-61 (Bankr. M.D.
Fla. 2000) (concluding refusal under § 727(a)(6) “must be willful and not merely
inadvertent”); Solomon v. Barman (In re Barman), 237 B.R. 342, 349 (Bankr.
E.D. Mich. 1999) (holding “refusal” requires intentional act of disregarding
order).
Thus, under § 727(a)(6)(C), the court may deny a debtor discharge of a debt
if he or she wilfully or intentionally refuses to testify after improperly asserting
the Fifth Amendment. 9 See In Re Connelly, 59 B.R. 421, 446 (Bankr. N.D. Ill.
11 U.S.C. § 727(a)(6).
9
In support of their contention the bankruptcy court improperly denied discharge,
the Martinezes mistakenly rely on cases discussing discharge under 11 U.S.C.
§ 727(a)(6)(B)–a subsection different from § 727(a)(6)(C), which the Bank asserted in
support of its complaint and motion for summary judgment, and which the bankruptcy
court relied on in denying the Martinezes’ discharge. See Martin-Trigona v. Belford (In
re Martin-Trigona), 732 F.2d 170, 171, 173 (2d Cir. 1984) (explaining § 727(a)(6)(B)
allows denial of debtor’s discharge when he or she fails to testify after receiving a grant
of immunity from the government); Turner v. Wlodarski (In re Minton Group, Inc.), 43
B.R. 705, 709 (Bankr. S.D. N.Y. 1984) (relying on § 727(a)(6)(B) to explain if the United
States Attorney does not request immunity from the district court, then a “debtor may
refuse to testify and still retain his right to a discharge”); Channel v. Channel (In re
Channel), 29 B.R. 316, 318 (Bankr. W.D. Ky. 1983) (determining denial of discharge is
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1986) (concluding a bankruptcy court may not only deny a discharge under
§ 727(a)(6)(C), but may dismiss a debtor’s case for failure to comply). While we
are cognizant the Bankruptcy Code, including § 727, must be construed liberally
in favor of the debtor because denial of a discharge is an extreme penalty, see
Gullickson v. Brown (In re Brown), 108 F.3d 1290, 1292-93 (10th Cir. 1997);
Rosen, 996 F.2d at 1531, we also acknowledge § 727(a)(6) is intended to give the
bankruptcy court a means to ensure the debtor is straightforward in dealings with
creditors and complies with its orders. Denial of discharge under § 727(a)(6) for
refusing to obey a court order follows the general proposition that a court order
“must be obeyed by the parties until it is reversed by orderly and proper
proceedings.” Maness v. Meyers, 419 U.S. 449, 459 (1975) (quotation marks and
citation omitted).
the appropriate remedy under § 727(a)(6)(B) when the debtor invokes the privilege
against self-incrimination after immunity has been granted by the United States Attorney).
Unlike subsection (B) of § 727(a)(6), subsection (C) permits denial of “a discharge
to a debtor who refuses to respond to a material question approved by the court or refuses
to testify on any ground other than the properly invoked privilege against self-
incrimination. This section applies when the debtor refuses to answer ‘a material
question approved by the court.’” 6 Collier on Bankruptcy ¶ 727.09[3], at 727-52
(emphasis added). In this case, the bankruptcy court relied on subsection (C) to
determine the Martinezes did not properly invoke their Fifth Amendment privilege under
§ 727(a)(6)(C) with respect to their claims against the Bank and Mr. Enloe, and ordered
them to answer material questions concerning those claims. For this reason, we find the
cases relied on by the Martinezes unpersuasive.
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With this said, this court also recognizes that “[w]hen the Fifth Amendment
privilege is invoked ..., the person claiming its protection ordinarily ‘receives a
judicial ruling at that time on the validity of his claim, and ... an opportunity to
reconsider it before being [penalized] for refusal to answer.’” Chicago Title Ins.
Co. v. Mart (In re Mart), 90 B.R. 547, 549 (Bankr. S.D. Fla. 1988) (quoting
Rogers v. Webster, 776 F.2d 607, 612 (6th Cir. 1985), and quoting in part Garner
v. United States, 424 U.S. 648, 663 (1976)) (alteration in original). “Not
affording one who asserts the privilege an opportunity to answer, once his claim
of privilege has been rejected, is to penalize him merely for asserting the
privilege.” In re Mart, 90 B.R. at 549 (quoting Rogers, 776 F.2d at 612). But
once the noncomplying party has an opportunity to reconsider whether to testify
in contradiction of a judicial ruling on the Fifth Amendment privilege and then
continues to refuse, he or she may be denied certain benefits and exposed to
negative consequences as a result of improperly reinvoking the privilege. See In
re Moses, 792 F. Supp. 529, 536 (Bankr. E.D. Mich. 1992) (relying in part on
Mid-America’s Process Serv. v. Ellison, 767 F.2d 684, 686 (10th Cir. 1985)).
In this case, the Martinezes plainly received a judicial ruling on the validity
of their Fifth Amendment privilege claims when the bankruptcy court issued the
Order to Compel, granting them Fifth Amendment protection in part, and denying
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such protection with regard to their claims against the Bank and Mr. Enloe. The
Martinezes then had an opportunity to reconsider whether to reassert their Fifth
Amendment privileges, and elected to reinvoke them: 1) at their second series of
depositions, 2) in response to the Bank’s complaint, and 3) in response to the
Bank’s motion for summary judgment. At their depositions, the Martinezes
acknowledged their understanding that the bankruptcy court’s order and
memorandum opinion compelled them to answer a series of questions concerning
their claims against the Bank and Mr. Enloe. They nevertheless knowingly
refused to comply, thereby electing to suffer any negative consequences as a
result of reinvoking their privilege. While they contend a disputed issue of
material fact exists as to whether their refusal was wilful or intentional, the record
and law applicable thereto clearly show otherwise. 10 Accordingly, the bankruptcy
and district courts did not err in determining no issue of material fact existed
10
We reject the Martinezes’ contention their refusal to answer the bankruptcy
court’s questions was not wilful or intentional because they relied on advice of counsel.
The primary case on which they rely is clearly distinguishable because the bankruptcy
court refused to deny discharge given the debtor’s false oath was the product of an
inadvertent oversight and mistake by the debtor or his attorney. See Casa Invests. Co. v.
Brenes (In re Brenes), 261 B.R. 322, 337 (Bankr. D. Conn. 2001). The other cases the
Martinezes cite in support of this proposition concern reliance on a United States
Attorney’s grant of immunity under Subsection (B) of § 727(a)(6) as the advice of
counsel relied on, or are otherwise similarly inapplicable, warranting no further
discussion. See In re Minton Group, Inc., 43 B.R. at 708-09. See also McCarthy v.
Arndstein, 266 U.S. 34, 41-42 (1924); McCormick v. Banc One Leasing Corp. (In re
McCormick), 49 F.3d 1524, 1526-27 (11th Cir. 1995); Olson v. Potter (In re Potter), 88
B.R. 843, 849-50 (Bankr. N.D. Ill. 1988).
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precluding summary judgment disposition.
Not dissuaded in their efforts to contest the grant of summary judgment, the
Martinezes attack the underlying Order to Compel and opinion in support thereof,
in which they claim the bankruptcy court improperly concluded the Fifth
Amendment privilege did not extend to their claims against the Bank and Mr.
Enloe. They also claim the bankruptcy court improperly granted summary
judgment based on the fact they failed to seek reconsideration or otherwise appeal
its Order to Compel. In support of this contention, the Martinezes argue the
bankruptcy court’s Order to Compel was a nonappealable, interlocutory discovery
order, and rely on cases discussing this court’s limited jurisdiction, under 28
U.S.C. § 158(d), to review only final orders of the district court, 11 rather than rely
on 28 U.S.C. § 158(a), which describes the district court’s jurisdiction to review a
bankruptcy court’s interlocutory orders. They further infer they did not appeal the
March 22, 2002 Order to Compel based on the bankruptcy court’s comment, six
months later, at the August 19, 2002 hearing on the Bank’s second motion to
compel, to withhold its ruling until after the trial.
11
See Farmers Home Admin. v. Buckner (In re Buckner), 66 F.3d 263, 265 (10th
Cir. 1995) (applying 28 U.S.C. § 158(d) to determine the Tenth Circuit’s jurisdiction over
district court orders); Magic Circle Energy v. Lindsey (In Re Magic Circle Energy Corp.),
889 F.2d 950, 953 (10th Cir. 1989) (same).
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We begin by noting, as did the district court, that the bankruptcy court’s
summary judgment decision was not based on the fact the Martinezes did not
appeal or request reconsideration of the Order to Compel, but on the fact they
failed to obey its order compelling answers to the specified questions. Even
though the summary judgment determination is not based on their failure to
challenge the order, we would be remiss not to point out the Martinezes
incorrectly contend no recourse existed to contest the Order to Compel, which not
only resolved the Bank’s discovery request, but resolved their Fifth Amendment
privilege claims. First, the Martinezes had the opportunity to request
reconsideration by the bankruptcy court, which they failed to do. See Unioil v.
Elledge (In re Unioil, Inc.), 962 F.2d 988, 993 (10th Cir. 1992). Next, the district
court’s jurisdiction to review interlocutory bankruptcy orders is contained in 28
U.S.C. § 158(a)(3), giving it discretion to review interlocutory or nonfinal
decisions of the bankruptcy court. See Gibson v. Kassover (In re Kassover), 343
F.3d 91, 94 (2d Cir. 2003) (stating “[u]nder Section 158 (a)(3), a district court has
discretionary appellate jurisdiction over an interlocutory order of a bankruptcy
court”); Adelman v. Fourth Nat’l Bank & Trust Co. (In re Durability, Inc.), 893
F.2d 264, 266 (10th Cir. 1990) (per curiam) (explaining § 158(a) expressly
permits the district court to entertain an appeal from a nonfinal order). Under this
provision, the Martinezes could have brought an interlocutory appeal before the
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district court.
As to the propriety of the bankruptcy court’s decision that the Fifth
Amendment privilege did not extend to the Martinezes’ claims against the Bank
and Mr. Enloe, the magistrate judge for the district court determined this issue
was not before the bankruptcy court in considering the Bank’s summary judgment
motion in the adversary proceeding, and therefore it refused to address it on
appeal. He explained:
The question of whether the Martinezes had a valid Fifth Amendment
privilege was decided in the Bankruptcy proceeding in response to
[the Bank’s first] motion to compel. The issue before [this] Court on
[the Bank’s] motion for summary judgment was whether the
Martinezes willfully and intentionally refused to respond to material
questions approved by the court.
Clearly, the district court did not address the propriety of the bankruptcy
court’s determination the Fifth Amendment privilege did not extend to the
Martinezes’ claims against the Bank and Mr. Enloe. Generally, we will not
address issues not addressed by the district court. See Walker v. Mather (In re
Walker), 959 F.2d 894, 896 (10th Cir. 1992). However, even if we addressed the
issue de novo as one underlying the summary judgment decision, and considered
the Martinezes’ appellate brief and the entire record designated on appeal, the
Martinezes fail to satisfactorily explain how their answers to questions on their
claims against the Bank and Mr. Enloe, especially for the money allegedly owed
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them, would lead to self-incrimination in Ms. Martinez’s criminal case. Instead,
they simply continue to assert a general Fifth Amendment claim that answering
the certified questions would impinge on their rights against self-incrimination.
This is insufficient to invoke the Fifth Amendment. See Hoffman v. United
States, 341 U.S. 479, 486 (1951) (explaining one “is not exonerated from
answering merely because he declares that in so doing he would incriminate
himself—his say-so does not of itself establish the hazard of incrimination”).
Finally, we address the Martinezes’ contention the district court improperly
struck from the record the August 19, 2002 hearing transcript on the Bank’s
second motion to compel and their attorney’s August 29, 2002 letter. Federal
Rule of Civil Procedure 61, incorporated in Federal Rule of Bankruptcy Procedure
9005, applies in determining whether an error in a bankruptcy proceeding is
harmless. See Hart Envtl. Mgmt. Corp. v. Sanshoe Worldwide Corp. (In re
Sanshoe Worldwide Corp.), 993 F.2d 300, 305 (2d Cir. 1993) (concluding failure
to make necessary specific finding was harmless error); Club Assocs. v. Consol.
Capital Realty Investors (In re Club Assocs.), 951 F.2d 1223, 1234 n.13 (11th Cir.
1992) (determining court’s failure to strike affidavit did not prejudice party);
Lovett v. Shuster, 633 F.2d 98, 103 (8th Cir. 1980) (holding erroneous admission
of evidence does not require reversal if based on harmless error). Specifically,
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Rule 61 states:
No error in either the admission or the exclusion of evidence and no
error or defect in any ruling or order or in anything done or omitted
by the court ... is ground for ... vacating, modifying, or otherwise
disturbing a judgment or order, unless refusal to take such action
appears to the court inconsistent with substantial justice.
Fed. R. Civ. P. 61.
We begin by concluding the district court did not err in striking the August
19, 2002 hearing transcript and August 29, 2002 attorney letter, both of which
deal with the Bank’s second motion to compel. As the district court determined,
neither was part of the record on which the bankruptcy court based its summary
judgment decision. As the bankruptcy judge noted in the August 19, 2002 hearing
on the second motion to compel, he had already ordered the Martinezes to comply
and answer the certified questions, “[s]o why should I order them to do it again?”
Clearly, the Martinezes had already wilfully violated the bankruptcy court’s Order
to Compel, sufficient for discharge under § 727(a)(6)(C), well before the Bank
filed its second motion to compel.
Even if the district court somehow erred in striking the hearing transcript
and letter, our review of those documents shows neither would change the
summary judgment disposition under the harmless error standard. This is because
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the Martinezes exclusively rely on those documents to point out the bankruptcy
court, at the hearing in question, verbally agreed to postpone a ruling on the
Bank’s second motion to compel until the conclusion of the criminal trial, which
was to begin in three weeks. They claim these documents establish the
bankruptcy court improperly granted summary judgment without first ruling on
the Bank’s second motion to compel. However, ten days after the August 19,
2002 hearing, and one day after the hearing on the summary judgment motion, the
Martinezes’ attorney informed the bankruptcy court Ms. Martinez pled guilty,
thereby removing the contingency of a trial on which the bankruptcy court’s
comment to withhold its ruling was based. Thus, even if the bankruptcy court’s
comment somehow extended to delaying summary judgment, which we conclude
it did not, the same contingency of trial was removed, leaving the court free to
rule on either motion.
In addition, at no time during the second motion to compel in the main
bankruptcy proceeding, or the motion for summary judgment in the adversary
proceeding, or at any other time indicated in the record, did the Martinezes ask
for a stay of the bankruptcy court’s summary judgment decision. Thus, even if we
considered the August 19, 2002 hearing transcript or the August 29, 2002 letter
from the Martinezes’ attorney, which informally advised the court to wait for
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sentencing before ruling on the second motion to compel, it does not change the
fact the Martinezes never requested a stay of the summary judgment decision in
the adversary proceeding. As a result, even if the district court somehow erred in
the exclusion of this evidence, the Martinezes have not shown how such an error
prejudiced them in a manner inconsistent with substantial justice. See Fed. R.
Civ. P. 61.
III. CONCLUSION
Based on the foregoing grounds, we conclude neither the bankruptcy court,
nor the district court on appeal, erred in denying the Martinezes discharge of their
debt for wilful refusal to respond to material questions approved by the court, in
reliance on 11 U.S.C. § 727(a)(6)(C). Accordingly, we AFFIRM the district
court’s decision and orders.
Entered by the Court:
WADE BRORBY
United States Circuit Judge
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