USACM Liquidating Trust v. Winthrop Couchot Professional Corp. (In Re USA Commercial Mortgage Co.)

FILED
NOT FOR PUBLICATION DEC 19 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In the Matter of: USA COMMERCIAL No. 10-16557
MORTGAGE CO.,
D.C. No. 2:09-cv-01947-RCJ-PAL
USACM LIQUIDATING TRUST,
MEMORANDUM *
Plaintiff - Appellee,
WINTHROP COUCHOT
PROFESSIONAL CORPORATION,
Former counsel for Anthony Monaco,
Susan K. Monaco and Monaco Diversified
Corporation,
Interested Party - Appellant,
v.
EAGLE RANCH, LLC; EAGLE RANCH
RESIDENTIAL, LLC; WILLOWBROOK
RESIDENTIAL, LLC; BRENTWOOD
128 LLC; RAVENSWOOD APPLE
VALLEY, LLC; ANTHONY MONACO;
SUSAN K. MONACO; MONACO
DIVERSIFIED CORPORATION,
Defendants.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Appeal from the United States District Court
for the District of Nevada
Robert Clive Jones, Chief District Judge, Presiding
Argued and Submitted August 31, 2011
San Francisco, California
Before: FISHER and RAWLINSON, Circuit Judges, and WU, District Judge.**
Winthrop Couchot Professional Corporation (Winthrop), former counsel for
Anthony and Susan K. Monaco (collectively, the Monacos), appeals the district
court’s imposition of discovery sanctions arising from the chapter 11 bankruptcy of
USA Commercial Mortgage Corporation (USACM). USACM Liquidating Trust
(the Trust), the transferee of USACM’s assets, filed the underlying adversary
proceeding against the Monacos alleging, inter alia, unjust enrichment.
1. We review de novo the legal question whether the district court
possessed the power to sanction Winthrop. See Unigard Sec. Ins. Co. v. Lakewood
Eng’g & Mfg. Corp., 982 F.2d 363, 367 (9th Cir. 1992) (Unigard). “If the power
existed, the district court’s exercise of that power will only be reversed for an
**
The Honorable George H. Wu, U.S. District Judge for the Central
District of California, sitting by designation.
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abuse of discretion. Underlying findings of fact are reviewed for clear error.” Id.(citation omitted).
The district court possessed the power to sanction Winthrop pursuant to its
inherent authority “to manage [its] own affairs so as to achieve the orderly and
expeditious disposition of cases.” Id. at 368 (citation omitted). The Trust’s motion
for sanctions asserted that the imposition of sanctions against Winthrop and the
Monacos was warranted pursuant to the district court’s inherent authority in
addition to Federal Rule of Civil Procedure (FRCP) 37. The district court’s
explicit finding of bad faith supports an inference that the court relied on its
inherent authority in addition to its authority under FRCP 37. See Primus Auto.
Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997) (Primus) (deducing
from “the focus of the district court’s inquiry and decision” that it was relying on
its inherent sanctions powers, despite the district court’s failure to expressly so
specify in its order).
2. Our decision does not conflict with GRiD Systems Corp. v. John Fluke
Mfg. Co., Inc., 41 F.3d 1318, 1320 (9th Cir. 1994) (per curiam). In GRiD Systems,
the district court relied exclusively and erroneously on its powers under 28 U.S.C.
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§ 1927. It does not appear that the party seeking sanctions raised the issue of
inherent authority before the district court. In contrast, the Trust in this case
moved for sanctions pursuant to the court’s inherent authority, thereby placing the
issue before the court. Thus, this case is governed by Unigard rather than GRiD
Systems, and there is no conflict between the cases.
3. The district court’s sanctions order did not constitute an abuse of
discretion because its decision was supported by an “explicit finding that counsel’s
conduct [during discovery] constituted or was tantamount to bad faith. . . .”
Primus, 115 F.3d at 648 (citations and internal quotation marks omitted). This
finding was not clearly erroneous. See id. at 649 (holding that “[a] finding of bad
faith is warranted where an attorney . . . delay[s] or disrupt[s] the litigation or
hamper[s] enforcement of a court order. . . .”) (citations and internal quotation
marks omitted); see also Townsend v. Holman Consulting Corp., 929 F.2d 1358,
1366 (9th Cir. 1991) (en banc), as amended (observing that we afford “great
deference” to a district court’s factual finding that an attorney acted with bad faith).
Indeed, the record reflects that counsel knowingly and willfully obstructed the
discovery process. At a minimum, when depositions were taken and all
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responsible parties denied knowledge of the whereabouts of crucial documents,
counsel were aware of and participated in the obstructive conduct of the
Defendants whom they represented.
4. Winthrop was afforded due process. See Paladin Assocs., Inc. v.
Mont. Power Co., 328 F.3d 1145, 1164-65 (9th Cir. 2003). The Trust’s motion
provided notice to Winthrop regarding the possibility of monetary sanctions if it
continued its discovery misconduct, and Winthrop’s responsive brief and
opportunity to present its arguments orally to the district court provided it with the
opportunity to be heard prior to the imposition of sanctions. See id. No
evidentiary hearing was required. See id. at 1164.
5. The district court did not lack jurisdiction to impose discovery
sanctions. See Willy v. Coastal Corp., 503 U.S. 131, 137-38 (1992) (holding that a
court has jurisdiction to make orders necessary for “the maintenance of orderly
procedure,” including the issuance of sanctions against attorneys, even if its
determination of its jurisdiction over the underlying action later turns out to be
mistaken); see also In re Exxon Valdez, 102 F.3d 429, 431 (9th Cir. 1996) (holding
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that the discovery sanctions imposed by the district court “were collateral to the
merits of the actions, just as the Rule 11 sanctions were in Willy . . . [T]hey did not
signify a district court’s assessment of the legal merits of the complaint.”)
(citations, alterations and internal quotation marks omitted).
6. Because we affirm sanctions under the court’s inherent authority, we
need not address whether sanctions may be awarded against an attorney under Rule
37(c), a question three other circuits have answered in the negative. See Grider v.
Keystone Health Plan Cent., Inc., 580 F.3d 119, 141 (3d Cir. 2009); Maynard v.
Nygren, 332 F.3d 462, 470 (7th Cir. 2003); Apex Oil Co. v. Belcher Co. of N.Y.,
855 F.2d 1009, 1014 (2d Cir. 1988).
AFFIRMED.
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