Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-07-00100/USCOURTS-ca10-07-00100-0/pdf.json

Parties Involved:
David Bainbridge
Appellee
Raymond Delgado
Appellee
Spencer Meier
Appellee
Margaret S. Soehngen
Appellant

Document Text:

* This unpublished opinion is not binding precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. 10th Cir. BAP

L.R. 8018-6(a).

FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

October 15, 2008

Barbara A. Schermerhorn

Clerk NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE MARGARET S. SOEHNGEN,

also known as Peggy Soehngen, also

known as Peg Shedden, also known as

Peg Korte, doing business as Blazing

Enterprises, formerly known as

Margaret Korte, formerly known as

Margaret S. Shedden, officer, director,

shareholder Growth Enterprises, Inc.,

Debtor.

BAP No. CO-07-100

DAVID BAINBRIDGE, RAYMOND

DELGADO and SPENCER MEIER,

Plaintiffs – Appellees,

Bankr. No. 05-51193-EEB

Adv. No. 06-01769-EEB

 Chapter 7

v. OPINION*

MARGARET S. SOEHNGEN,

Defendant – Appellant.

Appeal from the United States Bankruptcy Court

for the District of Colorado

Before McFEELEY, Chief Judge, NUGENT, and KARLIN, Bankruptcy Judges.

KARLIN, Bankruptcy Judge.

The parties did not request oral argument, and after examining the briefs

and appellate record, the Court has determined unanimously that oral argument

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 1 of 7
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would not materially assist in the determination of this appeal. Fed. R. Bankr. P.

8012. The case is therefore ordered submitted without oral argument.

Debtor Margaret Soehngen (“Debtor”) appeals the bankruptcy court’s

default judgment against her for non-dischargeability of her debt to plaintiffs,

pursuant to 11 U.S.C. § 523(a)(4) and (6). We affirm.

I. BACKGROUND

Debtor filed a petition for Chapter 7 relief on October 16, 2005. Plaintiffs

filed an adversary proceeding against Debtor, objecting to her discharge and the

dischargeability of a debt they contended she owed them based on a fraudulent

conveyance, concealment of assets, conversion, civil theft and breach of fiduciary

duty. Debtor filed an answer to the complaint through counsel, Christopher Clark

(“Clark”). 

Approximately five months later, plaintiffs filed a motion to compel Debtor

to respond to discovery requests and to make herself available for a deposition. 

The motion was set for hearing on June 19, 2007. Debtor neither responded to the

motion nor appeared at the hearing on the motion. 

As a result, the bankruptcy court granted plaintiff’s motion, deemed the

outstanding requests for admissions admitted, and ordered Debtor to respond to

the outstanding discovery requests by July 3, 2007, “failing which, the answer

will be stricken.” When Debtor failed to respond to the discovery, plaintiffs

moved to strike Debtor’s answer to their complaint on the ground that Debtor had

not complied with the court’s discovery deadline. Debtor did not respond to the

motion to strike, and the motion was granted on July 10, 2007. The Order

Striking Defendant’s Answer directed Plaintiffs to file a motion for default

judgment by August 10, 2007. 

Plaintiffs waited an entire month before filing that motion for default

judgment on August 10, 2007. There is nothing in the record to suggest Debtor

made any attempt during that month to respond to the discovery, to ask the court

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 2 of 7
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to reconsider the order striking her answer on the basis of her counsel’s illness, to

obtain substitute counsel, or to do anything else to properly defend the action.

After the motion for entry of default was filed, the bankruptcy court waited

almost two weeks to enter the default judgment; it was ultimately entered on

August 22, 2007. Again, Debtor did not respond to the motion for default

judgment, did not seek additional time to respond on the basis of her counsel’s

illness, and did not obtain substitute counsel or seek an extension of time to do

so. Instead, she simply ignored the proceedings. 

On September 4, 2007, Debtor filed a timely motion for extension of time

to appeal, asserting that Clark and Debtor had not had time to discuss the appeal,

“because of the press of other business in the relatively short time that has

elapsed since the [default] Order was entered.” No mention was made of Clark’s

illness, or inability to perform as Debtor’s counsel. 

The extension was granted, and Debtor timely filed a notice of appeal. 

Following notices of deficiencies from the BAP Clerk’s Office, Clark filed a

motion in this Court, requesting additional time in which to designate the record

on appeal and to file statements of interested parties and issues on appeal. The

basis for these requests was Clark’s unsworn statement that he was “much too

sick at present” to prepare the necessary documents because he had “a significant

bowel obstruction and a third recurrence of colon cancer.” Clark also represented

that he was scheduled for surgery on October 8, 2007, after which he would be

hospitalized for 5-6 days, and would require six weeks recovery time. Despite

this, Clark asserted that he would nevertheless be able to prepare and file the

necessary documents by October 21, 2007. The requested extension was granted

on October 16, 2007, and Clark timely filed the necessary documents on October

22, 2008. 

On November 13, another notice of deficiency was sent to Debtor, this time

for failing to timely file her appellate brief and appendix. The notice provided

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 3 of 7
1 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8002.

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that the appeal would be dismissed if the deficiencies were not cured within ten

days. When no response was received, this Court dismissed the appeal, for failure

to prosecute, on November 30, 2007. 

On December 13, 2007, however, this Court, sua sponte, stayed issuance of

the mandate for 45 days, after having received information that Clark “is very ill

and recently required hospitalization.” On January 30, 2008, attorney Lynda

Mihalik filed a motion for extension of the court’s stay of the mandate, on

Debtor’s behalf. In this request, Ms. Mihalik represented that she had been

assisting Clark with the management of his law office, that Clark would not be

returning to practice for several months, and that she would assist Debtor with

obtaining new counsel. 

On March 13, 2008, the motion for extension of stay was granted for sixty

days, and Debtor was directed to file a motion to reopen the appeal within that

time. On May 12, Debtor’s new counsel entered an appearance on her behalf and

filed a motion to reopen the appeal on the grounds that “the dilatoriness of

[Debtor’s] previous counsel has prevented [her] from having the opportunity to

defend this case on its merits.” Counsel further represented that Debtor’s former

counsel “remains gravely ill,” that Ms. Mihalik was not familiar with the details

of Debtor’s case, and that prior counsel’s neglect of his responsibilities in the

defense of the adversary proceeding was “possibly as a result of his illness.” The

motion to reopen was granted on June 3, 2008.

II. APPELLATE JURISDICTION

This Court has jurisdiction to hear timely-filed appeals from final

judgments and orders of bankruptcy courts within the Tenth Circuit, unless one of

the parties elects to have the district court hear the appeal.1

 Because a default

judgment is a final order, the notice of appeal was timely filed. No party to this

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 4 of 7
2 Garberg Assocs., Inc. v. Pack-Tech Int’l Corp., 115 F.3d 767, 771 (10th

Cir. 1997).

3 Big Sky Network Canada, LTD., v. Sichuan Provincial Gov’t, 533 F.3d

1183, 1186 (10th Cir. 2008).

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appeal has elected to have the appeal heard by the district court, and thus this

Court has appellate jurisdiction.

III. ISSUE AND STANDARD OF REVIEW

The single issue before this Court is whether the bankruptcy court erred by

entering a default judgment in this case. Decisions regarding the entry of default

judgments are within the bankruptcy court’s discretion, and are therefore

reviewed only for abuse of discretion.2

 In reviewing a bankruptcy court’s

decision, we consider the “range of possible outcomes the facts and law at issue

can fairly support,” and “defer to the [bankruptcy] court’s judgment so long as it

falls within the realm of these rationally available choices.”3

IV. DISCUSSION

Debtor contends that the bankruptcy court abused its discretion when it

entered default judgment against her because her failure to timely respond to

discovery, pursuant to the court’s order, was the result of her former attorney’s

neglect of her case, and that his neglect was the result of illness. Unfortunately,

the record before this Court contains nothing to indicate that the fact of counsel’s

illness ever was presented to the bankruptcy court, or that after being advised of

counsel’s illness, the bankruptcy court opted to enter default judgment while

denying additional time for Debtor to obtain substitute counsel. On the contrary,

what the bankruptcy court had before it were numerous unexplained failures by

Debtor to comply with discovery requests and court orders, even after she was

warned that she was in significant danger of having a default judgment entered. 

Accordingly, Debtor seeks a determination by this Court that the

bankruptcy court abused its discretion based on “facts” that were never presented

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 5 of 7
4 Cf. Magraff v. Lowes HIW, Inc., 217 Fed. Appx. 759, 761 (10th Cir. 2007)

(holding that it was not excusable neglect for counsel to wait until last day to file

notice of appeal, on which date he claimed to be ill, and that record did not show

that counsel was ill for the entire period during which the appeal could have been

filed). 

5 Singleton v. Wulff, 428 U.S. 106, 120 (1976).

6 In this respect, it should be noted that the United States Supreme Court has

specifically rejected the argument that a civil client may not be penalized for its

counsel’s mistake, holding that the lower court erred in not attributing to

respondents the fault of their counsel because they had voluntarily chosen their

attorney as their representative in the action, and they “cannot now avoid the

consequences of the acts or omissions of this freely selected agent.” Pioneer Inv.

Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 397 (1993). 

7 Fed. R. Civ. P. 60(b)(1), made applicable to bankruptcy proceedings by

Fed. R. Bankr. P. 9024.

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to that court. Indeed, it cannot be determined from the appellate record even that

counsel was ill during the critical time periods before the default judgment was

entered.4

 All the record shows is that he was seriously ill after filing the notice of

appeal, but still managed to make the required filings. The fact that the illness of

counsel was not listed in Debtor’s statement of issues on appeal also suggests that

the illness issue was never raised in the bankruptcy court.

The general rule is “that a federal appellate court does not consider an issue

not passed upon below.”5

 Thus, this Court may not decide issues that were not

first presented to the bankruptcy court. However, even if we were to make an

exception in this case, Debtor has neither provided, nor pointed to, the factual

record upon which to base a finding that the default judgment resulted from

counsel’s illness. Likewise, there is no record from which we could rule out

either simple neglect or Debtor’s failure to cooperate with her counsel as having

led to entry of the default judgment.6

 

Finally, although illness of counsel could possibly be considered

“excusable neglect,” upon which a Rule 60(b)(1)7

 motion filed with the

bankruptcy court could be based, wherein the necessary evidence of the illness

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 6 of 7
8 Both United States v. Widjaja, 2008 WL 384573 (D. Colo. 2008) and

United States v. Gibson, 832 F. Supp. 324 (D. Kan. 1993), cited by Debtor, are

criminal cases that cite with approval the proposition that illness of counsel can

provide a basis for a claim of excusable neglect, though neither case involved

such a claim and neither court found excusable neglect on the facts before it. 

Those cases are inapplicable here, however, because there is nothing in this

record to show that the bankruptcy court was made aware that illness of counsel

was the sole or main cause of Debtor’s failure to comply with discovery requests,

which failure precipitated the entry of default judgment. 

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and its timing could be provided by affidavit, we are not aware of any case in

which an appellate court has reversed a trial court’s default judgment based on a

representation, first made on appeal, that counsel’s illness led to the entry of the

default judgment.8

 Absent any record that establishes that the entry of default

judgment in this case was a direct result of counsel’s illness, we will not deviate

from the general rule that matters not first presented to the trial court will not be

considered on appeal.

Debtor also contends on appeal that she has “plausible defenses to the

allegations” against her, and that she should not be deprived of those defenses due

to counsel’s neglect of her case. Again, because Debtor never preserved those

defenses in the bankruptcy court, we do not consider them on appeal.

V. CONCLUSION

We conclude that entry of default was not an abuse of discretion in this

case, especially in light of Debtor’s failures to respond to discovery and to

comply with the bankruptcy court’s orders. It was not an abuse of discretion to

require Debtor to timely defend the adversary proceeding in accordance with the

rules, or to enter default judgment when she failed to do so. The bankruptcy

court’s entry of default judgment is, therefore, AFFIRMED.

BAP Appeal No. 07-100 Docket No. 48 Filed: 10/15/2008 Page: 7 of 7