Golant, Joseph H. v. Levy, Abraham

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1205
In re: Joseph H. Golant,
Debtor.
Joseph H. Golant,
Appellant,
v.
Abraham Levy,
Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 98 C 7452--James B. Moran, Judge.
Argued September 14, 2000--Decided February 12, 2001
Before Cudahy, Easterbrook and Ripple, Circuit Judges.
Cudahy, Circuit Judge. This case involves the
latest wranglings in an ongoing dispute between
Joseph Golant, a patent attorney, and Abraham
Levy, an inventor and one of Golant’s former
clients. From 1984 to 1990, Golant provided Levy
with legal services relating to a product known
as the car shade, a folding device placed on the
dashboard of a parked car to protect the car’s
interior from the sun. Levy ceased paying for
Golant’s services when Golant refused to provide
him with more detailed billing records. As a
result of Levy’s refusal to pay, Golant filed a
breach of contract claim against Levy in
California state court in 1991. Levy cross-
complained, alleging that Golant had overbilled
him by $1.5 million.
On March 21, 1996, Golant filed for Chapter 7
bankruptcy protection, 11 U.S.C. sec.sec. 701-
766, before the California trial reached
judgment. Levy, apparently worried that his
cross-claim against Golant might be discharged in
bankruptcy, filed a two-count adversarial
complaint in Golant’s bankruptcy proceeding on
October 28, 1996. Count one of the complaint
sought to deny Golant a general discharge of his
debts under Section 727(a) of the Bankruptcy
Code, 11 U.S.C. sec. 727(a). Count two sought to
deny Golant a specific discharge of Levy’s debt
under Sections 523(a)(4) and (a)(6) of the
Bankruptcy Code, 11 U.S.C. sec. 523(a)(4) & (6).
On Levy’s motion, the bankruptcy court
bifurcated the adversary proceedings and tried
count one of Levy’s complaint first. In December
1997, Golant appeared pursuant to a notice for
deposition and document production that had been
served on him by Levy. At that time, Golant
refused to tender all of the requested documents.
As a result, Levy filed a motion to compel
production on March 17, 1998. Over Golant’s
objection, the bankruptcy court granted Levy’s
motion and, in an order dated April 23, 1998,
required Golant to produce within seven days: (1)
documents relating to his credit and debit cards,
including evidence of payment of card balances,
and (2) documents relating to Golant’s
prepetition legal services from January 1995 to
December 1996, including time records, billing
statements, account ledgers and client names and
addresses.
While Golant did produce a number of his
records, he did not fully comply with the April
23 order. For example, Golant failed to produce
his bank statements; bank books and check
registers; names and addresses of all of his
clients; and documents showing the case numbers,
captions and courts in which he represented
clients. In addition, Golant tendered a list of
32 clients, but produced billing records for only
19 of them.
In response to Golant’s failure to comply with
the April 23 order, Levy filed his first motion
for entry of judgment as a discovery sanction.
The bankruptcy court denied this motion, but, in
an order dated May 8, 1998, required Golant to
comply with the April 23 order by May 22. The
court also warned Golant that it might deny him
a discharge of his debts as a discovery sanction
if he continued to fail to comply with the April
23 order. Levy filed a second motion for entry of
judgment on May 18, 1998, but the court continued
this motion to May 27, apparently because Levy
had filed it before Golant’s time to comply with
the April 23 order had expired. Ultimately,
Golant did not comply with the discovery orders,
and the court set an evidentiary hearing for May
29 to determine the extent of Golant’s failure to
comply.
At the evidentiary hearing, Golant admitted to
creating or receiving time records; billing
statements; monthly bank statements for the
account used in his practice; deposit slips from
deposits of funds into his law account; a ledger
for recording fees received; check stubs showing
deposits of fees received; and documents with
case numbers, captions and courts in which Golant
represented clients. However, Golant produced
none of these documents, maintaining that they
had, for the most part, already been produced.
Golant, however, did admit to not producing
billing statements for some clients from whom he
received money shortly before bankruptcy, even
though he was required to produce these
statements. Golant also admitted not producing
documents evidencing payment of his credit card
debts.
On September 8, 1998, the bankruptcy court
entered a default judgment in favor of Levy on
his adversary complaint as a discovery sanction
under Federal Rule of Civil Procedure 37 (made
applicable to bankruptcy proceedings by Federal
Rule of Bankruptcy Procedure 7037). The court
discussed Golant’s failure to comply with its
discovery orders and noted that Golant’s
"persistent refusal to abide [by] the provisions
of the Bankruptcy Code and Rules is frustrating
to the court, to say the least." Levy v. Golant
(In re Golant), No. 96 B 007376, slip op. at 6
n.5 (Bankr. N.D. Ill. Sept. 8, 1998). The court
further noted that "[t]here was no way that this
Court could have tried this case . . . and no way
that the court can try it now due to [Golant’s]
own actions and failures to act." Id. at 7. As a
result of the sanction, Golant was denied a
general discharge in bankruptcy. Golant appealed
to the district court, which affirmed.
I
Before we address the merits of Golant’s
argument, we must determine whether we may
properly exercise jurisdiction over this appeal.
"[A] court of appeals has jurisdiction over a
bankruptcy appeal only if the bankruptcy court’s
original order and the district court’s order
reviewing the bankruptcy court’s original order
are both final." In re Rimsat, Ltd., 212 F.3d
1039, 1044 (7th Cir. 2000) (and authority cited
therein); see also 28 U.S.C. sec. 158(d).
We first consider the finality of the
bankruptcy court’s original sanction order. In
the context of a bankruptcy proceeding, "[w]here
an order terminates a discrete dispute that, but
for the bankruptcy, would be a stand-alone suit
by or against the trustee, the order will be
considered final and appealable." Rimsat, 212
F.3d at 1044. Ordinarily, "a request for a
declaration of nondischargeability is conceived
as kicking off a separate, adversary proceeding
within the framework of the overall bankruptcy
proceeding, Bankruptcy Rule 7001(6), so that an
order declaring the debt either dischargeable or
not is a final, appealable order." In the Matter
of Marchiando, 13 F.3d 1111, 1113-14 (7th Cir.
1994) (citing In re Riggsby, 745 F.2d 1153, 1154
(7th Cir. 1984)). Thus, had the bankruptcy court
decided Levy’s complaint on the merits, the
court’s order would easily qualify as the kind of
final, appealable order over which we routinely
exercise jurisdiction. However, the bankruptcy
court did not decide Levy’s complaint on the
merits, and we must decide whether this wrinkle
alters our jurisdiction.
In the bankruptcy context, most forms of
discovery sanction had been considered final and
appealable until Rimsat noted, without deciding,
that this view may no longer be tenable in light
of Cunningham v. Hamilton County, Ohio, 527 U.S.
198 (1999). See Rimsat, 212 F.3d at 1044(discussing In re Wade, 991 F.2d 402, 406 (7th
Cir. 1993)). In Cunningham, the Supreme Court
ruled that an order imposing monetary sanctions
upon an attorney in a civil case was not an
immediately appealable final decision. 527 U.S.
at 209-10. Thus, as noted by Rimsat, Cunningham
might certainly be read to preclude the
interlocutory review of monetary sanctions in
bankruptcy cases as well.
However, Cunningham cannot be understood to
preclude the immediate review of the entry of
default judgment, at least in the bankruptcy
context. The entry of default judgment is simply
much more "final"--effectively terminating a
party’s litigation in court--than the imposition
of monetary sanctions, which merely alter the
litigation’s course. Indeed, we were unable to
uncover any cases discussing how Cunningham might
alter the long-held view that sanctions which
completely eliminate the possibility of a
decision on the merits--such as a default
judgment or dismissal--are "final" for the
purpose of appeal. See, e.g., Ordower v. Feldman,
826 F.2d 1569, 1573 (7th Cir. 1987) (order in
civil case dismissing complaint for untimely
service is "final"); Aurora Bancshares Corp. v.
Weston, 777 F.2d 385, 386 (7th Cir. 1985) (order
in civil case dismissing suit as a sanction for
discovery abuse is "final"). Consequently,
regardless of how Cunningham might apply to the
review of monetary sanctions in a bankruptcy
proceeding, Cunningham does not preclude the
review of a sanction imposing a default judgment.
Therefore, the bankruptcy court’s order here is
a final, appealable order.
As noted, however, it is not enough for the
bankruptcy court’s order to be final; the
district court’s decision on appeal must be final
as well. "[A]n order is considered ’final’ for
purposes of 28 U.S.C. sec. 158(d) when it
’finally determines’ one creditor’s position . .
. ." In the Matter of Gould, 977 F.2d 1038, 1041
(7th Cir. 1986). A creditor’s position has been
finally determined when there is no need to
remand a case to the bankruptcy court for further
significant proceedings with regard to that
creditor. See In the Matter of Lopez, 116 F.3d
1191, 1192 (7th Cir. 1997); In the Matter of
Riggsby, 745 F.2d 1153, 1155 (7th Cir. 1984).
Thus, "in cases like ours where the bankruptcy
court is affirmed, ’the affirmance [is] a final
decision appealable to us.’" In the Matter of
Weber, 892 F.2d 534, 538 (7th Cir. 1989) (quoting
In re Fox, 762 F.2d 54, 55 (7th Cir. 1985)).
Here, then, it is only important that there be no
more significant proceedings in prospect between
Levy and Golant. Because the district court
affirmed the bankruptcy court, no such
proceedings appear to remain. The district court
decision in this case, therefore, is final.
Lastly, we note that there is good reason,
beyond the technical application of precedent,
for entertaining this appeal. Were we to postpone
this appeal until all issues in bankruptcy have
been decided, there would be considerable doubt
about those matters presumably involved in such
proceedings as may remain in bankruptcy because
the valuation of creditors’ claims against Golant
and the valuation of Golant’s estate both depend
upon which, if any, of Golant’s debts may be
discharged. As we stated in Reichman v. United
States Fire Ins. Co.:
We tolerate [bankruptcy] appeals in part because
of the need to tie up the many subsidiary matters
that litter the road to the distribution of
assets in bankruptcy. A court cannot wait until
the end of the case to allow the appeal, because
final disposition in bankruptcy (the plan,
distribution, and discharge) depends on prior,
authoritative disposition of subsidiary disputes.
The separable disputes that can be handled as
individual cases may be dealt with as they arise,
the better to advance the end of the whole
bankruptcy case.
811 F.2d 1112, 1116 (7th Cir. 1987); see also
Gould, 977 F.2d at 1041. Accordingly, for these
reasons, we properly have jurisdiction over this
appeal and may review the bankruptcy court’s
imposition of sanctions on Golant.
II
Golant disputes (1) the factual findings
underlying the bankruptcy court’s decision to
sanction him; (2) the choice of sanction; and (3)
several miscellaneous matters. We address, and
reject, Golant’s arguments in turn.
We first address Golant’s disagreement with the
bankruptcy court’s conclusion that he violated
the court’s discovery orders. When a court enters
default judgment as a discovery sanction--a
severe penalty that effectively terminates a
party’s ability to prevail on the merits--the
court must find that the party against whom
sanctions are imposed displayed willfulness, bad
faith or fault./1 See Ladien v. Astrachan, 128
F.3d 1051, 1056 n.5 (7th Cir. 1997); Langley v.
Union Elec. Co., 107 F.3d 510, 514 (7th Cir.
1997); cf. Fox v. Commissioner, 718 F.2d 251, 255
(7th Cir. 1983) (sanction of dismissal
appropriate only when total failure to respond to
discovery requests). While we strongly encourage
courts to make this finding explicitly, we may
infer it, if necessary, from the sanction order
itself. See Rimsat, 212 F.3d at 1047. The court’s
finding, whether implicit or explicit, is
reviewed for clear error. Melendez v. Ill. Bell
Tel. Co., 79 F.3d 661, 670-71 (7th Cir. 1996).
Here, the bankruptcy court did not explicitly
state that Golant evidenced willfulness, bad
faith or fault. However, even a cursory reading
of the court’s sanction order shows that the
court found, at least implicitly, that Golant’s
conduct met this standard. The court noted that
it had repeatedly ordered Golant to comply with
Levy’s discovery request, and that Golant had not
done so. For example, Golant produced only 19
billing records when his own list of clients
indicated that he had at least 32 clients. Golant
even admitted to failing to produce numerous
documents. This, and other similar violations of
the court’s discovery orders, compelled the
bankruptcy court to remind Golant that he was
"not only a ’debtor’ under the Bankruptcy Code,
but also a lawyer who has the ethical obligations
of the legal profession." Levy v. Golant (In re
Golant), No. 96 B 007376, slip op. at 6 n.5
(Bankr. N.D. Ill. Sept. 8, 1998). Further, the
court concluded that, from its review of the
record, Golant’s "failure to comply stems from
the fact that if he were to comply he would, in
effect, sink himself." Id. at 8. It is clear,
then, that the bankruptcy court adequately found
that Golant acted willfully and in bad faith in
failing to comply with the court’s discovery
orders.
Golant offers nothing to rebut the above
conclusions. Golant argues, as he did in both
lower courts, that he in fact complied with the
court’s production order--an odd claim to make
since he admitted at his evidentiary hearing that
he had failed to comply fully./2 It is true that
Golant did produce a fair number of documents in
response to Levy’s request, and this appears to
be essentially his defense. As noted, however,
Golant also failed to produce many important
documents. For example, Golant acknowledged
representing approximately 32 clients, yet
billing records from only 19 clients were
produced in response to the bankruptcy court’s
order. When queried at oral argument about the 13
missing billing records, Golant could only reply
that "it is unknown where the rest of them are,
but, again, the record is unclear as to what
happened to the rest." Golant needs to do more
than merely assert that the location of the
relevant records is unknown if he wishes to
persuade us that he did indeed comply with the
bankruptcy court’s production orders.
Golant also takes issue with the bankruptcy
court’s choice of sanction. The entry of
sanctions under Rule 37 is reviewed for an abuse
of discretion. See National Hockey League v.
Metropolitan Hockey Club, Inc., 427 U.S. 639, 642
(1976); Salgado v. General Motors Corp., 150 F.3d
735, 739 n.5 (7th Cir. 1998). Under this standard
of review, "an appellant faces an uphill battle
in seeking to reverse an award of sanctions by
the district court." Langley v. Union Elec. Co.,
107 F.3d 510, 513 (7th Cir. 1997). Appellants
find the task of securing reversal of sanction
awards so difficult at least in part because we
do not require the lower court to select the
least severe sanction. See Melendez v. Ill. Bell
Tel. Co., 79 F.3d 661, 672 (7th Cir. 1996). This
does not mean, however, that a court possesses
unfettered discretion to impose sanctions upon a
recalcitrant party. Instead, "the sanction
selected must be one that a reasonable jurist,
apprised of all the circumstances, would have
chosen as proportionate to the infraction."
Salgado, 150 F.3d at 740; see also Sherrod v.
Lingle, 223 F.3d 605, 612 (7th Cir. 2000).
Particular attention must be paid to this
limitation on a court’s discretion when a court
dismisses a cause outright (or, as here, enters
default judgment)--a sanction to be used "only in
extreme situations." Webber v. Eye Corp., 721
F.2d 1067, 1069 (7th Cir. 1983).
Here, a default judgment against Golant is the
only adequate sanction. On April 23, the
bankruptcy court ordered Golant to comply with
Levy’s discovery requests. On May 8, Golant was
still withholding the requested documents, and
the court once again ordered Golant to produce
these documents. This time, the court also
provided Golant with notice that it would
consider imposing sanctions against him--
including entering judgment denying him
discharge--if he persisted in neglecting to
comply with the orders./3 In spite of this
notice, Golant continued to defy the orders,
failing to turn over many of the required
documents. As a result of Golant’s actions, the
bankruptcy court found that "[t]here was no way
that this Court could have tried this case . . .
and no way that the court can try it now due to
[Golant’s] own actions and failures to act." Levy
v. Golant (In re Golant), No. 96 B 007376, slip
op. at 7 (Bankr. N.D. Ill. Sept. 8, 1998).
In spite of Golant’s protestations, we fail to
see how the bankruptcy court could have come to
any other conclusion. Golant was ordered twice to
comply with the bankruptcy court’s production
order. In spite of a warning regarding the
severity of possible sanctions, Golant continued
to ignore the bankruptcy court’s order. Where a
debtor in bankruptcy refuses to be completely
forthright with information regarding his
financial dealings and resources--information
that is of paramount importance to an efficient
and fair bankruptcy proceeding--the bankruptcy
court is left with little recourse but to enter
default judgment against the debtor. Accordingly,
the sanction imposed on Golant, although severe,
was appropriate.
Golant also argues that the sanctions violate
his due process rights. In order to satisfy due
process, Rule 37 sanctions must be just and
relate to the claim at issue. See Insurance Corp.
of Ir., Ltd. v. Compagnie des Bauxities of Gunee,
456 U.S. 694, 707 (1982). Golant does not contest
the fact that his sanction related to the claim
at issue. However, he argues that his sanction
was unjust because the bankruptcy court failed to
adequately investigate Levy’s assertion that
Golant had not complied with the bankruptcy court
discovery orders. Golant’s argument is
unconvincing. As noted, Golant was provided with
several opportunities to comply with Levy’s
discovery requests, and the bankruptcy court was
not clearly erroneous in concluding that he
failed to do so. In addition, Golant was allowed
to testify at the evidentiary hearings preceding
his Rule 37 sanction. As a result, he was
afforded ample opportunity to present his side of
the story to the bankruptcy court. Thus, Golant’s
due process rights were not violated.
Golant lastly makes two miscellaneous arguments.
First, Golant appears to argue that the
bankruptcy court showed "undue bias" towards him.
The greater part of Golant’s "undue bias"
argument is merely a complaint that the
bankruptcy court ruled against him on several
matters. Without other evidence, we will not find
bias merely because a party loses on the merits.
See In the Matter of Huntington Commons Assocs.,
21 F.3d 157, 158 (7th Cir. 1994) (challenged
actions of bankruptcy judge that consisted of
judicial rulings and ordinary admonishments were
not sufficient to show deep-seated and
unequivocal antagonism that would render fair
judgment impossible). However, Golant also
premises his "undue bias" argument upon his
belief that the bankruptcy court allowed
"unsupported statements from Levy’s counsel"--
apparently, counsel’s argument that Golant did
not fully produce the ordered documents--to
become evidence. Golant cites a string of
inapposite cases in support of his argument, of
which Chicago Ridge Theatre Ltd. v. M&R
Amusement, 855 F.2d 465 (7th Cir. 1988), is
illustrative. In Chicago Ridge Theatre, we
reversed the district court’s grant of judgment
in favor of the defendants because the grant was
based upon expert testimony that had not been
introduced into evidence. In that case, we found
that the unintroduced testimony of the
defendants’ expert witnesses violated the
plaintiff’s due process rights. Id. at 469. From
our holding in Chicago Ridge Theatre, Golant
appears to reason that the allegations of Levy’s
counsel should have been introduced into evidence
and subjected to cross-examination. However,
Golant’s argument goes too far. Here, Levy’s
counsel were merely advocating their client’s
position--not providing a form of expert
testimony--and the trial court was not required
to place counsel’s statements into evidence. The
district court was required only to look at the
documents produced by Golant to ascertain whether
he had complied with the court’s production
orders. The district court did so and, as already
noted, committed no error in determining that
Golant failed to comply with its orders.
Golant lastly disputes the bankruptcy court’s
order against him for costs. That issue is not
properly before this court. The bankruptcy order
from which Golant appeals makes no mention of
costs and, in fact, states that "[t]he only order
that will be entered will be striking [Golant’s]
pleadings, specifically his amended answer to the
amended complaint, and denying the Debtor’s
discharge." Levy v. Golant (In re Golant), No. 96
B 007376, slip op. at 9 (Bankr. N.D. Ill. Sept.
8, 1998). The district court memorandum and order
in this case notes that Golant’s cost objections
are "the subject of a different appeal." Levy v.
Golant, No. 98 C 7452, slip op. at 1 (N.D. Ill.
Dec. 9, 1999) Consequently, we express no opinion
with regard to Golant’s objection to the costs
imposed upon him.
IV
For the foregoing reasons, the decision of the
district court is
Affirmed.
/1 We are aware that it is not always clear how far
a court’s discretion extends when imposing a
sanction of dismissal or default judgment under
Rule 37. See Crown Life Ins. Co. v. Craig, 995
F.2d 1376, 1381 (7th Cir. 1993). Many of our
decisions, at least implicitly, require a finding
of willfulness, bad faith or fault to support a
dismissal order. See, e.g., Rimsat, 212 F.3d at
1046-47; Ladien v. Astrachan, 128 F.3d 1051, 1056
n.5 (7th Cir. 1997); Langley v. Union Elec. Co.,
107 F.3d 510, 514 (7th Cir. 1997). However, other
decisions do not. See, e.g., Williams v. Chicago
Bd. of Educ., 155 F.3d 853, 857 (7th Cir. 1998)
(requiring that dismissal be supported only by
"clear record of delay or contumacious conduct,
or when other less drastic sanctions have proven
unavailing.") (citation omitted). Regardless of
the proper standard, we find that Golant’s
conduct satisfies even the toughest standard--the
finding of willfulness, bad faith or fault--and
thus find that the bankruptcy court did not abuse
its discretion in this respect.
/2 However, it is worth noting that Golant’s defense
is not as meritless as Levy’s counsel would have
us believe. For example, Levy’s counsel allege
that Golant "admitted that as a part of his law
practice, he created, maintained, and/or received
the following documents, all of which were
ordered produced in the April 23rd and May 8th
orders: (i) time records . . . ." Appellee’s Br.
at 8. However, a close look at the May 29, 1998
transcript of proceedings shows that while Golant
admitted to creating time records, he also stated
that he did not keep his time records beyond the
time necessary to create his bills for the time
recorded in those records. May 29, 1998 Tr. at
18. It is thus misleading, and not helpful to
this court, to insinuate that Golant should
somehow have turned over his time records even
though he did not, as part of his usual business
practice, retain them.
/3 The bankruptcy court thus provided Golant with
the due warning necessary under Ball v. City of
Chicago, 2 F.3d 752, 755 (7th Cir. 1993)
(requiring court to provide plaintiff’s counsel
with due warning prior to dismissing case as a
sanction for failure to prosecute); see also
Spain v. Bd. of Educ., 214 F.3d 925, 929-30 (7th
Cir. 2000) (applying Ball to Rule 37 sanctions).