Court Opinion

ID: 9373951
Source: CourtListenerOpinion
Date Created: 2023-02-22 16:10:43.528096+00
Date Added: 2024-06-11T17:16:43.978819
License: Public Domain

FILED
                                                                                 JUN 13 2022
                         NOT FOR PUBLICATION
                                                                            SUSAN M. SPRAUL, CLERK
                                                                               U.S. BKCY. APP. PANEL
                                                                               OF THE NINTH CIRCUIT

          UNITED STATES BANKRUPTCY APPELLATE PANEL
                    OF THE NINTH CIRCUIT

In re:                         BAP No. CC-21-1206-TLG
CHRISTOPHER ALLEN HAGEMAN; and BAP No. CC-21-1207-TLG
CRYSTAL DEE HAGEMAN,
             Debtors.          Bk. No. 6:18-bk-12269-MW

CHRISTOPHER ALLEN HAGEMAN;                          Adv. No. 6:18-ap-01081-MW
CRYSTAL DEE HAGEMAN; T. HALL
BREHME, IV,
             Appellants,
v.                                                  MEMORANDUM∗
PILAR ESCONTRIAS,
             Appellee.

               Appeal from the United States Bankruptcy Court
                    for the Central District of California
                Mark S. Wallace, Bankruptcy Judge, Presiding

Before: TAYLOR, LAFFERTY and GAN, Bankruptcy Judges.

                                 INTRODUCTION

      Appellants Christopher Allen Hageman and Crystal Dee Hageman

(“Debtors”) appeal the bankruptcy court’s orders denying their motion to

vacate default judgment (“Motion to Vacate”) and granting $7,225 in

      ∗This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
sanctions for bringing the motion. Seeing no abuse of discretion, we

AFFIRM.

                                       FACTS 1

A.    Prepetition events

      Creditor Pilar Escontrias stored significant personal property

(“Property”) in a large warehouse in Riverside owned by the Koll

Company. Debtor Crystal Hageman was a Koll Company employee. When

Ms. Escontrias defaulted on the lease in 2009, the Koll Company conducted

an eviction sale of the property. When no one showed up at the sale, the

Koll Company purportedly donated the Property2 to “a local charity.”

      Ms. Escontrias sued the Koll Company in 2010 but lost when

Ms. Hageman testified regarding the donation of the Property. Then, in

2016, Ms. Escontrias discovered that her property was being sold on the

internet by Ms. Hageman. She filed a new complaint in state court, this

time for conversion, against the Debtors and their son Kai Hargis.

      Shortly before trial, the Debtors filed a chapter 7 case.

value, see 9th Cir. BAP Rule 8024-1.
        1 We exercise our discretion to take judicial notice of documents electronically

filed in the main case and the adversary proceeding. See Atwood v. Chase Manhattan
Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).
        2 Ms. Escontrias provided a detailed eleven-page list of the personal property

with values for the items cumulating in a total value of $189,845. The list was “deemed
admitted” by order of the bankruptcy court when Debtors failed to respond to
                                            2
B.    The dischargeability action and subsequent default

      Ms. Escontrias timely filed her complaint in the Debtors’ chapter 7

case requesting denial of the Debtors’ discharge under § 727(a)(4)(A)3 and a

finding that the debt owed to her by the Debtors was non-dischargeable

under § 523(a)(6). 4 The Debtors and Ms. Escontrias litigated the matter for

more than a year and a half until the Debtors filed a Notice of Withdrawal

of Answer and Entry of Special Appearance. Thereafter, the bankruptcy

court entered an order directing the clerk to enter the Debtors’ default.5

      Ms. Escontrias then filed her motion for default judgment seeking

denial of the discharge against the Debtors and damages of $189,845 plus

prejudgment interest, costs, and attorneys’ fees. It is undisputed that

Debtors were served by mail at least 21 days before the actual hearing.

      The Debtors filed an opposition to the motion two days before the

hearing. The opposition made various legal arguments and attacked the

sufficiency of the evidence but offered no evidence itself. At the hearing,

the bankruptcy court permitted oral argument by Debtors’ counsel but in

the end declined to consider the opposition on the basis that it was filed too

late. The bankruptcy court entered its order granting the monetary

Ms. Escontrias’ Request for Admissions.
      3 Unless specified otherwise, all chapter and section references are to the

Bankruptcy Code, 11 U.S.C. §§ 101–1532. “Rule” references are the Federal Rules of
Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of Civil
Procedure.
      4 Ms. Escontrias also sued Mr. Hargis.

      5 She separately defaulted Mr. Hargis previously; we do not discuss him further.

                                           3
damages requested of $271,990.14 and denied the Debtors’ discharge. The

bankruptcy court later entered a final judgment. It was not appealed.

C.    The motion to vacate default judgment and motion for sanctions

      A year later the Debtors filed a motion asking the bankruptcy court

to vacate the default judgment.

      Ms. Escontrias responded by serving a draft motion for sanctions

under Rule 9011 giving Debtors and their counsel 21 days to withdraw the

Motion to Vacate. 6 When the time elapsed and the Motion to Vacate was

not withdrawn, Ms. Escontrias filed her opposition and a sanctions motion.

      The bankruptcy court heard both motions, denied the Motion to

Vacate, and granted the Motion for Sanctions. As to sanctions, it awarded

attorney’s fees of $7,225 payable to Ms. Escontrias’ counsel; the sanctions

were “joint and severable as to Debtors and their attorney.”

      The Debtors timely appealed from both orders.7

      6
         Ms. Escontrias notes in her motion that a draft motion for sanctions had been
served on Debtors and their counsel pursuant to Rule 9011(c)(1)(A) giving them the
prescribed 21 days safe harbor notice. The draft motion is not in the record, but Debtors
and Mr. Brehme acknowledge receipt.
       7 The Notice of Appeal for the sanctions order identifies Appellants as

Christopher Allen Hageman and Crystal Dee Hageman. While Mr. Brehme was added
as an appellant on the docket by the Clerk and, thus, is included in the caption, we find
no evidence that he initiated a timely appeal on his own behalf. Thus, as to him the
sanctions order appears final and nonappealable. Given that we affirm, and given that
Appellee did not raise the issue, we need not further discuss the point. But it has
ramifications if a further appeal is filed. Mr. Brehme must then address them.
                                            4
                                   JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUES

      1.    Whether the bankruptcy court abused its discretion by refusing

to vacate the default judgment.

      2.    Whether the bankruptcy court abused its discretion in

awarding sanctions under Rule 9011.

                          STANDARDS OF REVIEW

      The Panel reviews a trial court’s decision to deny a Civil Rule 60(b)

motion to vacate a default judgment for an abuse of discretion. Cmty.

Dental Servs. v Tani, 282 F.3d 1164, 1167 n.7 (9th Cir. 2002), as amended on

denial of reh’g and reh’g en banc, (April 24, 2002).

      Rule 9011 sanctions awards also are reviewed for an abuse of

discretion. Classic Auto Refinishing, Inc. v. Marino (In re Marino), 37 F.3d

1354, 1358 (9th Cir. 1994).

      To determine whether the bankruptcy court has abused its discretion,

we conduct a two-step inquiry: (1) we review de novo whether the

bankruptcy court “identified the correct legal rule to apply to the relief

requested” and (2) if it did, we consider whether the bankruptcy court's

application of the legal standard was illogical, implausible, or without

support in inferences that may be drawn from the facts in the record.

                                         5
United States v. Hinkson, 585 F.3d 1247, 1262-63 & n.21 (9th Cir. 2009)

(en banc).

                                DISCUSSION

A.    Motion to Vacate the Judgment.

      1.     The Civil Rule 60(b)(4) motion was properly denied because

           the default judgment is not void.

      Debtors brought the Motion to Vacate under Civil Rule 60(b),

focusing almost entirely on Civil Rule 60(b)(4), which states:

             On motion and just terms, the court may relieve a party
      or its legal representative from a final judgment, order, or
      proceeding for the following reasons:
             ...
             (4) the judgment is void.

      Debtors argued that the judgment is void based on alleged

“procedural or jurisdictional irregularities in obtaining the default

judgment.” The irregularities are alleged to be that the “motion” should

have been an “application” and that, had it been an application, the

Debtors would have been required to “simply show [up] at the hearing and

testify.” From this they conclude that their opposition filed two days before

the hearing was not late and should have been considered.

      But the remedy for the alleged error is an appeal, not a Civil Rule

60(b) motion. A court’s failure to consider an opposition does not make the

judgment void, especially under the facts here.

                                      6
      In United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), the

Supreme Court noted that

            A void judgment is a legal nullity. See Black’s Law
      Dictionary 1822 (3d ed. 1933). Although the term “void”
      describes a result, rather than the conditions that render a
      judgment unenforceable, it suffices to say that a void judgment
      is one so affected by a fundamental infirmity that the infirmity
      may be raised even after the judgment becomes final. The list of
      such infirmities is exceedingly short; otherwise, Rule 60(b)(4)’s
      exception to finality would swallow the rule.

Id. at 270. (cleaned up)

      In Espinosa the creditor argued that it did not receive proper notice

before the bankruptcy court confirmed a chapter 13 plan. The Supreme

Court disagreed; “[the creditor] received actual notice of the filing and

contents of Espinosa’s plan. This more than satisfied [the creditor’s] due

process rights.” Id. at 272.

      Debtors’ cited cases do not aid their argument. In each, the defect

giving rise to a Civil Rule 60(b)(4) challenge went directly to the court’s

power to render a judgment. See Jackson v. FIE Corp. 302 F.3d 515, 518 (5th

Cir. 2002)(challenge to court’s personal jurisdiction could be attacked

through Civil Rule 60(b)(4) motion); Oldfield v. Pueblo De Bahia Lora, SA,

558 F.3d 1210, 1216, n.13 (11th Cir. 2009)(“In general, ‘a judgment is void

under [Civil] Rule 60(b)(4) if the court that rendered it lacked jurisdiction of

the subject matter, or of the parties, or if it acted in a manner inconsistent

with due process of law.’"(citations omitted)); Irvin v. Harris, 944 F.3d 63, 68

                                       7
(2nd Cir. 2019) (inadequacy of class representation could be attacked on

Civil Rule 60(b)(4) motion).

      Here there is no question that the bankruptcy court had the power to

render judgment. Instead, Debtors engage in procedural nit-picking. They

also disregard the rock-solid ability of a judge to regulate matters in the

courtroom so long as due process is afforded. Federal courts’ “inherent

power extends to a full range of litigation abuses” which includes the

inherent power to manage their own proceedings and to control the

conduct of those who appear before them. Chambers v. NASCO, Inc.,

501 U.S. 32, 46 (1991).

      The local rules of the Central District of California specify what must

be included in “a motion for default judgment.” Local Rule (“LBR”) 7055-1.

LBR 9013-1 provides detailed rules for filing any motion and any

opposition including deadlines for opposition; an opposition to a motion

must be filed 14 days before the hearing. LBR 9013-1(f)(1). Failure to file an

opposition may be deemed to be consent to the granting of the motion.

LBR 9013-1(h). A court may award attorney’s fees to opposing counsel for

violation of the local rules. LBR 9011-3.

      Debtors were served consistent with the Local Rules and did not file

timely opposition. They offer no reason why these rules do not apply here.

That they self-selected an alternate method for voicing opposition was an

apparent strategic decision, not a violation of due process. Due process

requires notice which affords meaningful but not limitless opportunities to

                                       8
be heard. Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306 (1950). There

is no evidence on this record that the Debtors were deprived of notice or

the opportunity to be heard as to the motion for default judgment. Debtors’

counsel so admitted at the hearing. “I don't think I ever said we didn't get

enough notice.” The bankruptcy court’s jurisdiction – power to act – is

obvious. Civil Rule 60(b)(4) provides no basis for reconsideration of this

long-final judgment.

      2.    Civil Rule 60(b)(1) also does not apply.

      Debtors also suggest that Civil Rule 60(b)(1), which provides that the

court may “relieve a party . . . from a final judgment” for “(1) mistake,

inadvertence, surprise, or excusable neglect,” applies and that the

judgment should be vacated based on “mistake.” But Debtors, in arguing

this point, essentially repeat their “void judgment” argument saying

“[h]ere, the mistake is Plaintiff and the Court treating the Application for

Entry of Default Judgment as a motion. It is not.”

      On this record, there was no mistake justifying Civil Rule 60(b)(1)

relief. Debtors merely recycle arguments previously made, allege legal

error, and fail to identify anything new that makes enforcement of the

judgment unfair; they fail to justify Civil Rule 60(b)(1) relief. United Student

Funds v. Wylie (In re Wylie), 349 B.R. 204, 209 (9th Cir. BAP 2006)

      In sum, Civil Rule 60(b)(1) provides no basis for a request that the

bankruptcy court “revisit the merits” a year later and no basis for an attack

on the judgment that they did not appeal.

                                       9
B.    Motion for Sanctions.

      1.    The motion to vacate the default judgment was frivolous.

            Rule 9011(b) states in relevant part:

             (b) By presenting to the court . . . a . . . pleading, written
      motion, or other paper, an attorney . . . is certifying that to the
      best of the person's knowledge, information, and belief, formed
      after an inquiry reasonable under the circumstances,—
             (1) it is not being presented for any improper purpose,
      such as to harass or to cause unnecessary delay or needless
      increase in the cost of litigation;
             (2) the claims, defenses, and other legal contentions
      therein are warranted by existing law or by a nonfrivolous
      argument for the extension, modification, or reversal of existing
      law or the establishment of new law . . .

      In her motion under Rule 9011, Ms. Escontrias focused on Debtors’

argument that the judgment is void, which purportedly gave them a basis

under Civil Rule 60(b)(4) to bring the motion. Ms. Escontrias argued, and

the bankruptcy court agreed, that there is no basis in law or in fact for that

argument. We also agree.

      The bankruptcy court found that the argument that the default

judgment was void because it was designated as a “motion” instead of an

“application” and that only seven days’ notice was required instead of the

21 days they were actually given was frivolous. The argument was not

warranted by existing law, and no argument was made that existing law

should be extended, modified, or reversed.

                                       10
      The Debtors allegedly believed that they could simply appear at the

hearing on the default judgment and start presenting evidence and

argument. Their attorney stated at the hearing: “The law says the

defendant can appear at the hearing on the application. They don't have to

file anything, but they may file written objections, which is what we did.”

And yet, they acknowledge, citing Civil Rule 55(b)(2), that a hearing on a

default judgment motion is not even required.

      The bankruptcy court also commented at the hearing that the other

arguments made in the motion to vacate were “really frivolous in the sense

that we have been down this road before. There is nothing new. It is the

same old rehashed arguments that the court rejected before.” 8

      The Ninth Circuit has defined the term “frivolous” in Civil Rule 11 to

mean “a filing that is both baseless and made without a reasonable and

competent inquiry.” Townsend v. Holman Consulting Corp., 929 F.2d 1358,

1362 (9th Cir.1990); accord, Holgate v. Baldwin, 425 F.3d 671, 676 (9th

Cir.2005). The argument that the judgment is void is baseless. There is no

attempt at an argument that the bankruptcy court did not have jurisdiction

to hear the matter nor could there be. The argument that the judgment was

entered without due process is contradicted by the Debtors’ own argument

and is frivolous.

      In fact, the conclusion in the Debtors’ opposition to the motion for default
      8

judgment and in the motion to set aside the judgment are identical.
                                           11
      The Debtors also argue that the motion should fail because it does not

“describe the specific conduct alleged to violate Rule 11.” This is more of

the same. First, the conduct was presumably noted in the draft motion for

sanctions served 21 days before the motion itself. Second, it could not be

more obvious that the conduct was bringing the Civil Rule 60(b) motion in

the first place. Finally, the bankruptcy court clearly pointed out the conduct

which merited the sanctions, specifically making “frivolous arguments,”

including the argument that “you were denied due process because you

got 7 days – you got 21 days’ notice instead of 7 days notice.”

      2.     The motion to vacate the default judgment was brought for

           an improper purpose.

      As to the improper purpose for the motion to vacate, Ms. Escontrias

argues that there is no reasonable explanation for the motion other than to

harass, cause unnecessary delay, and avoid paying the judgment. She

argues that the timing of the motion shows that it was brought for an

improper purpose. Debtors’ counsel surprisingly responded at the hearing

by commenting on the timing of the motion saying,

            Plaintiff says, Well, why did you wait a year? Why not
      did you --
            Well, why not?
            Why didn't you appeal? Why didn't you --
            Well, we don't have to. We don't have to do that. There is
      no requirement. There is no law that says that. This is just –

                                      12
            I am being questioned on a strategic move now when you
      can't do that. If there is a reason why I shouldn't have filed it
      now, I haven't heard it.

      Improper purpose is determined by an objective standard, and a

“court confronted with solid evidence of a pleading's frivolousness may in

circumstances that warrant it infer that it was filed for an improper

purpose.” Townsend, 929 F.2d at 1365 (emphasis added). This is such a

circumstance since there is no other reason argued or even arguable on this

record. “Although the ‘improper purpose’ and ‘frivolousness’ inquiries are

separate and distinct, they will often overlap since evidence bearing on

frivolousness or non-frivolousness will often be highly probative of

purpose. The standard governing both inquiries is objective.” Id. at 1362.

      We see no abuse of the bankruptcy court’s discretion. Filing a motion

to vacate a judgment that was not appealed, where no newly discovered

evidence exists, where no new arguments on the merits are advanced, and

where the assertion of a due process lapse is wholly without merit can be

presumed to have been done for the improper purpose of delaying

appropriate collection efforts or creating settlement leverage.

      3.     Sanctions in the form of attorneys’ fees awarded to

           Ms. Escontrias were appropriate.

             Rule 9011(c)(2) states in relevant part:

            [T]he sanction may consist of, or include, . . . if imposed
      on motion and warranted for effective deterrence, an order
      directing payment to the movant of some or all of the

                                       13
      reasonable attorneys’ fees and other expenses incurred as a
      direct result of the violation.

      The sanctions awarded of $7,225 were the attorneys’ fees expended

opposing the motion to vacate, preparing the motions for sanctions, and

attending related court appearances. The sanctions are against the Debtors

and their attorney jointly and severally. LBR 9011-3 permits the court to

award attorney’s fees to opposing counsel for violation of the local rules.

      The Debtors offered no specific reason why the amount awarded was

inappropriate other than stating that the amount was “just astronomical”

and “[i]t’s an extraordinary amount of time to spend. . . .“ We disagree and

find no abuse of discretion in the amount awarded. 9

                                  CONCLUSION

      Based on the foregoing, we AFFIRM.

      9
         The bankruptcy court did not state under which portion of Rule 9011 it was
awarding the sanctions. Rule 9011(c)(2)(B) provides that “[m]onetary sanctions may not
be awarded against a represented party for a violation of subdivision (b)(2).” Rule
9011(b)(2) provides “the claims, defenses, and other legal contentions therein are
warranted by existing law or by a nonfrivolous argument for the extension,
modification, or reversal of existing law or the establishment of new law.” If the
sanctions here were assessed solely based on the frivolous arguments of law made by
the attorney, they should not have been assessed against the Debtors personally. But
there is sufficient evidence in the record justifying a conclusion that the motion to
vacate was brought for an improper purpose. This makes Rule 9011(b)(1) applicable,
and the award against the Debtors appropriate. And we emphasize, Debtors did not
raise this point on appeal.
                                          14