Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_06-cv-07796/USCOURTS-cand-4_06-cv-07796-2/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

In re: FRED AND LINDA KOELLING,

Debtors/Appellants/

Cross-Appellees.

__________________________________/

QMECT, INC.,

Debtor/Plaintiff,

No. C 06-7796 PJH

BK Case Nos. 04-46443 T

 04-41044 T

Adv. Case Nos. 04-4190 AT

 04-4365 AT

 04-4366 AT

v. ORDER DENYING MOTION TO

DISMISS BANKRUPTCY APPEAL

BURLINGAME CAPITAL PARTNERS, II,

L.P.; ELECTROCHEM FUNDING, LLC,

Defendants/Appellees/

Cross-Appellants.

_________________________________/

Before the court is appellees/cross-appellants’ Burlingame Capital Partners II, L.P.

and Electrochem Funding, LLC (collectively “Burlingame”) motion to dismiss

appellants/cross-appellees Linda and Fred Koelling’s (“Koellings”) bankruptcy appeal

pursuant to Federal Rules of Bankruptcy Procedure (“FRBP”) 8001 and 8006. For the

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At the time of the bankruptcy court’s February 8, 2006 order, Qmect’s case was still

a chapter 11 bankruptcy case; however, the case has since converted to chapter 7.

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Due in part to the court’s unavailability and the fact that January 1 and 2, 2007 were

federal holidays, the court did not receive the letter until January 3, 2007.

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Based on FRBP 9001(3)’s definition of “clerk,” as contained in the FRBP, as

“[b]ankruptcy clerk,” it appeared to the court that the bankruptcy court should have received

the request for an extension of time pursuant to FRBP 8006.

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reasons that follow, the court DENIES the motion to dismiss.

BACKGROUND

The parties appeal the bankruptcy court’s February 8, 2006 findings of fact and

conclusions of law following an eleven-day bench trial on several different issues raised in

the course of consolidated adversary proceedings (04-4190 AT, 04-4365 AT, 04-4366 AT), 

related to debtor Qmect’s now-chapter 7 bankruptcy case (04-41044 AT)1

 and to the

Koellings’ chapter 11 bankruptcy case (04-46443 T). At issue in the bench trial were

Qmect’s equitable subordination action against Burlingame; Burlingame’s proof of claim

against the Koelling estate; Burlingame’s guaranty action against the Koellings; and

Qmect’s and the Koellings’ breach of fiduciary action against Burlingame. On August 14,

2006, the bankruptcy court entered judgment in part in favor of and against Burlingame,

and in part in favor of and against the Koellings and Qmect.

Following the bankruptcy court’s judgment, the Koellings experienced some difficulty

securing representation on appeal. On November 28, 2006, the Koellings, with some

assistance from their bankruptcy trial counsel, filed pro se a notice of appeal. According to

FRBP 8006, and as reflected by the bankruptcy court’s docket, the Koellings’ statement of

issues (“SOI”) and designation of items for the record on appeal (“DOR”) were due to the

bankruptcy court no later than December 8, 2006. The Koellings did not meet the deadline,

but instead on December 22, 2006, Linda Koelling wrote a letter addressed to this court

requesting an extension of time to file their SOI and DOR until January 9, 2007.2

 Because

it appeared to this court that the request should have been addressed to the bankruptcy

court, on January 5, 2007, the court referred the request to the bankruptcy court.3 The

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The meaning of the certificate is not entirely clear. On the one hand, it suggests that

the bankruptcy court had all of the designated transcripts. On the other hand, it also suggests

that “copies” of something - presumably either the documents appellants designated as part

of the record or copies of transcripts - still had not been provided by appellants.

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bankruptcy court, however, did not rule upon the request, and on January 12, 2007, the

Koellings filed their SOI and DOR with the bankruptcy court. 

In the meantime, on December 7, 2006, Burlingame filed its notice of cross-appeal. 

On January 18, 2007, the bankruptcy court issued a certificate of record to the parties that

notified them that the “all transcript(s) requested by either the Appellant or Appellee have

been filed with this Court,” but also that “copies were not provided by the appellant.”4

On March 19, 2007, Burlingame filed with this court the instant motion to dismiss the

Koellings’ appeal based on the Koellings’ late-filed SOI and DOR, their alleged failure to file

the documents they designated for the record on appeal, and their failure to procure and

file the designated transcripts. Subsequently, on March 28, 2007, the Koellings ordered

transcripts for the hearings designated in their DOR on an expedited basis, in the amount

of $8,030.32.

At a status conference before this court on March 29, 2007, plaintiffs, along with

their current attorney on appeal, Paul Manasian, appeared. Plaintiffs informed the court

that although they were still proceeding pro se, Manasian had agreed to represent them on

appeal, but that they were waiting for bankruptcy court approval. The bankruptcy court

subsequently approved Manasian’s representation of the Koellings on appeal on April 6,

2007, and on April 11, 2007, the Koellings, now represented by Manasian, filed their

opposition to the instant motion. On April 17, 2007, the Koellings filed a notice with the

bankruptcy court that all designated transcripts had been ordered. On April 25, 2007,

Burlingame filed its reply with this court. Following the completion of briefing on

Burlingame’s motion to dismiss, on June 18, 2007, the transcripts ordered by the Koellings

were transmitted from the bankruptcy court to the clerk of this court. As of June 18, 2007, it

now appears that the record on appeal is complete.

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DISCUSSION

A. Legal Standards

Under FRBP 8006, within ten days of filing a notice of appeal, the appellant is

required to file its statement of issues and designation of items for the record on appeal. 

The rule further provides that the party designating an item for the record on appeal is

required to provide a copy of the items designated, or “the clerk shall prepare the copy at

the party’s expense.” Additionally, with respect to transcripts, Rule 8006 requires the party

“immediately after filing the designation” to “deliver to the reporter and file with the clerk a

written request for the transcript and make satisfactory arrangements for payment of its

cost.” FRBP 8001(a), in turn, provides that “[a]n appellant’s failure to take any step other

than timely filing a notice of appeal does not affect the validity of the appeal, but is ground

only for such action as the district court or bankruptcy appellate panel deems appropriate,

which may include dismissal of the appeal.”

The Ninth Circuit has held that as a general rule, prior to dismissing a bankruptcy

appeal for failure to perfect the appeal, the district court must consider “the impact of the

sanction, alternative sanctions, and the relative culpability of the appellant and his attorney,

because dismissal may inappropriately punish the appellant for the neglect of his counsel.”

In re Beachport Entertainment, 396 F.3d 1083, 1087 (9th Cir. 2005) (citations omitted); see

also Fitzsimmons v. Nolden, 920 F.2d 1468, 1472 (9th Cir. 1990). However, the district

court may dismiss an appeal without consideration of alternative sanctions “in egregious

circumstances.” Fitzsimmons, 920 F.2d at 1474. “[T]he existence of bad faith is a factor

that must be considered when reviewing a motion to dismiss for non-compliance with

Bankruptcy Rule 8006,” and bad faith will constitute egregious circumstances. Id.

Nevertheless, “the bottom line policy consideration is whether the sanction of dismissal

matches the conduct at issue.” Id. at 1474-75.

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The Koellings, however, do not really explain why they failed to comply with the

January 9, 2007 deadline they requested, instead filing the SOI and DOR on January 12, 2007.

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B. Burlingame’s Motion

1. Parties’ Arguments

Burlingame argues that this court should dismiss the Koellings’ appeal based on

their repeated violations of FRBP 8006, which it contends constitute bad faith. It bases its

dismissal arguments on the following violations: (1) the Koellings’ untimely filing of their SOI

and DOR; (2) the Koellings’ failure to order and procure the designated hearing transcripts;

and (3) the Koellings’ failure to transmit the other items identified in their DOR to the

bankruptcy court. Burlingame asserts that the repeated violations constitute bad faith, and

in support, notes that the Koellings were aware of their obligations, pointing to Linda

Koelling’s December 22, 2006 request for an extension of time.

In opposition, the Koellings admit that they were late filing their SOI and DOR, but

argue that their conduct was neither egregious nor in bad faith. They note that they were

unrepresented until the bankruptcy court approved Manasian’s representation on April 6,

2007. As for their untimely filing of the SOI and DOR, the Koellings note that they

requested an extension of time, but the bankruptcy court never ruled on it.5

 The Koellings

also argue that they were unaware that the record was not complete. As for their untimely

procurement of the transcripts, the Koellings imply that it was not obvious from the

bankruptcy court’s January 18, 2007 certificate of record that copies of the transcripts were

missing. They contend that they actually interpreted the certificate to imply that the record

was in fact complete. The Koellings assert that they did not discover that the designated

transcripts had not been prepared until approximately March 27, 2007, when Linda Koelling

contacted the bankruptcy court and was informed that the transcripts that had been

prepared concerned Qmect’s main chapter 7 bankruptcy case (which is/was on appeal

before another judge) and not the bench trial in the consolidated adversary proceedings

giving rise to this appeal. 

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The Koellings also argue that the delay caused by their failure to comply with FRBP

deadlines has caused minimal, if any, prejudice to Burlingame. They assert that the delay

has not affected any of the pending proceedings in the bankruptcy cases, and further note

that a multi-week state court trial concerning other claims relevant to the issues on appeal

and to proceedings in the bankruptcy case was set to commence on July 2, 2007. By

contrast, the Koellings argue that dismissal of their appeal would result in harsh

consequences not only for them, but for the creditors in their pending chapter 11

bankruptcy case. 

Burlingame replies that the Koellings should not be treated differently as pro per

litigants because they had assistance from counsel even at the time they filed their notice

of appeal. Burlingame asserts that the Koellings are not naive pro pers, but are very courtsavvy and experienced litigants given the litigation that has taken place since 2002.

Burlingame asserts that the fact that the Koellings were aware of FRBP 8006's

requirements, coupled with the three months it took them to procure appellate counsel,

suggests that their delay was intentional and strategic. It argues that the Koellings’

assertions regarding their unawareness of the incomplete status of the record are not

credible, and points to the bankruptcy court’s January 18, 2007 certificate of record as

support.

Burlingame also argues that it has been and will continue to be prejudiced by the

delay. In support, it offers two examples of prejudice. First, it contends that the delay has

necessitated otherwise unnecessary litigation costs, including the time and costs

associated with the motion to dismiss. Second, it argues that the delay may cause the

briefing schedule for this appeal to interfere with the July 2, 2007 state court trial. 

Burlingame also includes a new argument in its reply brief - that the Koelling’s posttrial motions filed and decided by the bankruptcy court were actually untimely, and thus

rendered this appeal untimely. Accordingly, Burlingame contends this court lacks

jurisdiction over the appeal. Finally, citing to a Ninth Circuit Rule, Burlingame argues that it

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is entitled to an award of fees and costs associated with this motion.

2. Analysis

It is undisputed that the Koellings filed their SOI and DOR late. In fact, their letter

requesting an extension was itself filed two weeks after the deadline had passed. 

However, presumably because of the timing, the bankruptcy court did not rule on the

request for an extension prior to the time that the Koellings filed their SOI and DOR on

January 12, 2007. Assuming that the bankruptcy court would have granted the request for

an extension, which appears to this court to have been a reasonable request, then the

Koellings filed the documents, at most, three days late.

The transcripts, however, are a different story. As noted, FRBP 8006 required that

the Koellings procure the transcripts immediately. The Koellings, however, did not order

the transcripts until March 28, 2007 – nearly 75 days after they filed their SOI and DOR. As

noted, the Koellings state that they were confused by the bankruptcy court’s seemingly

contradictory January 18, 2007 certificate of record, and did not learn until March 2007 that

the transcripts from the bench trial had not been prepared. However, as Burlingame points

out, the Koellings, although technically proceeding pro se until April 2007, were no

strangers to litigation. In fact, the Koellings’ December 22, 2006 letter requesting an

extension of time demonstrates their awareness of FRBP 8006. In addition to the

requirements regarding the SOI and DOR, FRBP 8006 also clearly places the onus for

securing relevant transcripts on the designating party – in this case, the Koellings. Under

FRBP 8006, the Koellings had a duty to inquire immediately regarding the preparation of

the transcripts, and should have inquired regarding the status of the transcripts immediately

upon receiving the bankruptcy court’s January 18, 2007 certificate of record. 

As for the other documents designated by the Koellings, the parties’ papers and the

record are unclear as to what delay, if any, occurred regarding the Koellings’ provision of

those documents to the bankruptcy court in accordance with FRBP 8006. However, the

court does note, that unlike the transcripts and the SOI and DOR, Rule 8006 does

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contemplate that the bankruptcy court itself may compile the documents at the expense of

the designating party. It appears that may have occurred in this case.

In sum, the issue then becomes whether (affording the Koellings the benefit of the

doubt with respect to their outstanding letter for an extension of time to file the SOI and

DOR), the three-day delay in the SOI and DOR filing, combined with the 75 day delay in

procuring the transcripts, constitutes bad faith amounting to “egregious circumstances.” 

Given the circumstances of this case, the court does not find that the Koellings’

conduct rose to the level of extreme and unexcused delay that constitutes bad faith and

warrants dismissal in the first instance, absent prior warning from this court and absent the

use of alternative sanctions. See, e.g., In re Beachport, 396 F.3d at 1088 (reversing

Bankruptcy Appellate Panel’s (“BAP”) dismissal based on party’s failure to comply with

procedural rules, concluding that dismissal was too harsh a remedy and that alternative

sanctions should have been utilized). The delay in the other controlling Ninth Circuit case,

in addition to the district cases relied on by Burlingame, was much more severe and

repetitive than that which has occurred in this case. See Fitzsimmons, 920 F.2d at 1475

(dismissing appeal where party’s failure to comply with FRBP 8006 resulted in three year

delay); In re Patin, 199 B.R. 728, 731 (N.D. Cal. 1996) (dismissing appeal where party

failed to comply with bankruptcy court order regarding perfection of record for eight

months); see also In re Aspen Healthcare, Inc., 265 B.R. 442, 447 (N.D. Cal. 2001)

(dismissing appeal where party failed to designate record and submit SOI for 200 days

after notice of appeal was filed).

In denying Burlingame’s motion, the court does not find that the delay of 75 days in

procuring the transcripts was insignificant. Nor does the court believe that the Koellings are

unsophisticated pro se litigants. However, under the circumstances, which include the: (1) 

amount of the delay; (2) the showing of some diligence by the Koellings, as evidenced by

their December 22, 2006 letter to this court; (3) the Koellings’ attestations regarding the

difficulty they encountered securing appellate counsel; and (4) their confusion resulting

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from the bankruptcy court’s January 18, 2007 certificate of record, the court does not find

bad faith.

Additionally, other than the time and expense associated with litigating the instant

motion to dismiss, the court does not find that Burlingame has been prejudiced by the

delay. The primary source of prejudice cited by Burlingame – conflict with the July 2, 2007

state court trial – should no longer be an issue given the timing of this order. Additionally,

the court has taken into consideration the conflict cited by Burlingame, and has set a

briefing schedule that should eliminate any resulting prejudice. Nevertheless, the court

notes that Burlingame is represented by Allen, Matkins, Leck, Gamble, Mallory, & Natsis

LLP, a firm whose own website states that it has more than 200 attorneys. Accordingly, the

court is hard-pressed to believe that Burlingame’s counsel is unable to effectively prepare

for and comply with the demands associated with both the state court trial and the instant

appeal. 

Although the court is denying Burlingame’s motion to dismiss, it has considered

other sanctions. A leading bankruptcy treatise suggests that one alternative would be for

the court “to refuse to consider any argument that cannot be properly reviewed absent an

adequate transcript.” 10 Collier on Bankruptcy, § 8006.08[1] at 8006-10 n.3 (2007 Suppl.). 

However, having reviewed the issues on appeal and cross-appeal, and given the fact that

the transcripts at issue cover nearly the entire bench trial giving rise to the appeal and

cross-appeal, this alternative would be tantamount to dismissal. Instead, after

consideration, the court has determined that a more appropriate alternative is simply to

require strict compliance with future deadlines by the Koellings. Accordingly, the Koellings

are advised that any future delay or failure to comply with the deadlines set by this order

will result in dismissal under FRBP 8001.

Turning now to the issues raised by Burlingame for the first time in its reply brief, the

court denies without prejudice Burlingame’s request for attorneys’ fees and its argument

that this court lacks jurisdiction because the Koellings’ post-trial motions filed and decided

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by the bankruptcy court were actually untimely, thus rendering this appeal untimely. 

Burlingame should have raised these issues in its opening motion papers, thus affording

the Koellings an opportunity to respond to the arguments. See U.S. v. Romm, 455 F.3d

990, 997 (9th Cir. 2006) (citing Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir.1999))

(declining to consider issue raised by party for the first time in reply brief because

“arguments not raised by a party in its opening brief are deemed waived”).

CONCLUSION

For the reasons above, the court DENIES Burlingame’s motion to dismiss the

Koellings’ appeal. The court also DENIES WITHOUT PREJUDICE Burlingame’s request

for attorney’s fees and motion to dismiss the appeal as untimely as raised for the first time

in its reply brief. However, the court advises the Koellings that any future delay and/or noncompliance with the FRBP and/or this court’s orders will result in dismissal of their appeal.

The Koellings are hereby ordered to file and serve their opening brief on appeal no

later than August 9, 2007. Burlingame shall file and serve a consolidated opening brief on

cross-appeal and in opposition to the Koellings’ opening brief on appeal no later than

September 10, 2007. The Koellings shall file and serve their consolidated opposition to

Burlingame’s cross-appeal and reply on appeal no later than October 1, 2007. Burlingame

may file a reply, if any, on cross-appeal no later than October 11, 2007.

IT IS SO ORDERED.

Dated: July 10, 2007

___________________________

PHYLLIS J. HAMILTON

United States District Judge

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