Court Opinion

ID: 2657879
Source: CourtListenerOpinion
Date Created: 2014-03-25 20:20:39.220734+00
Date Added: 2024-06-11T13:00:38.117025
License: Public Domain

FILED
                                                               Mar 25 2014
 1
                                                          SUSAN M. SPRAUL, CLERK
 2                                                          U.S. BKCY. APP. PANEL
                                                            OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No.    CC-13-1282-TaKuPa
                                   )
 6   MARCELO BRITTO GOMEZ,         )        Bk. No.    11-26905-TD
 7                                 )
                    Debtor.        )        Adv. No.   11-02360-TD
 8   ______________________________)
                                   )
 9   CARTER STEPHENS,              )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )        MEMORANDUM*
                                   )
12   MARCELO BRITTO GOMEZ; UNITED )
     STATES TRUSTEE,**             )
13                                 )
                    Appellees.     )
14                                 )
15                  Argued and Submitted on February 20, 2014
                             at Pasadena, California
16
                             Filed - March 25, 2014
17
               Appeal from the United States Bankruptcy Court
18                 for the Central District of California
19       Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding
20
     Appearances:     Appellant Carter Stephens, pro se; Douglas Crowder
21                    of Crowder Law Center for appellee Marcelo Brito
                      Gomez.
22
23   Before:   TAYLOR, PAPPAS, and KURTZ, Bankruptcy Judges.

24
          *
            This disposition is not appropriate for publication.
25
     Although it may be cited for whatever persuasive value it may
26   have (see Fed. R. App. P. 32.1), it has no precedential value.
     See 9th Cir. BAP Rule 8013-1.
27
          **
            The United States Trustee did not file a brief, appear at
28   argument, or otherwise participate in this appeal.

                                        1
 1        Carter Stephens sought reconsideration of the bankruptcy
 2   court’s dismissal of his adversary proceeding against Debtor
 3   Marcelo Britto Gomez for failure to prosecute.   The bankruptcy
 4   court denied the motion; Stephens appealed.   This Panel vacated
 5   the order denying relief and remanded to the bankruptcy court for
 6   findings of fact and conclusions of law.   See Stephens v. Smith
 7   (In re Gomez), 2012 WL 5938722 (9th Cir. BAP Nov. 28, 2012).      On
 8   remand, the bankruptcy court supported its decision with a
 9   nine-page memorandum decision, from which Stephens now appeals.
10        We AFFIRM.
11                                  FACTS1
12        Stephens retained attorney Lori Smith to represent him in
13   litigation against the Debtor.   After the Debtor filed a
14   chapter 72 case, Smith – on Stephens' behalf – filed a
15   § 523(a)(2)(A) and (a)(6) nondischargeability complaint.    After
16   filing the adversary complaint, however, Smith's activity in the
17   case was, at best, sporadic.
18        Pursuant to LBR 7016-1(a),3 the bankruptcy court scheduled
19
          1
20          Many of the relevant background facts are detailed in the
     memorandum decision in the first BAP appeal. See In re Gomez,
21   2012 WL 5938722, at *1-3.
22        2
            Unless otherwise indicated, all chapter and section
     references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
23
     All “Bankruptcy Rule” references are to the Federal Rules of
24   Bankruptcy Procedure, all “Civil Rule” references are to the
     Federal Rules of Civil Procedure, and all “LBR” references are to
25   the Local Bankruptcy Rules of the United States Bankruptcy Court
     for the Central District of California.
26
          3
27          LBR 7016-1(a) and (a)(2) provide that the bankruptcy clerk
     issues a summons and notice of the status conference and that the
28                                                      (continued...)

                                      2
 1   an initial status conference for September 1, 2011.4      The Debtor
 2   filed an LBR 7016-1 status report prior to hearing; Stephens
 3   filed nothing.      Similarly, the Debtor and his counsel appeared at
 4   the status conference; Smith did not.      Neither Smith nor anyone
 5   from Smith's office explained her non-attendance to the
 6   bankruptcy court (or to Stephens, for that matter).      The
 7   bankruptcy court continued the status conference to the end of
 8   the month.
 9           After the bankruptcy court continued the hearing, it learned
10   that Stephens was present.      At that time, it explained to
11   Stephens that Smith failed to appear and also failed to file a
12   required pre-hearing status report.      Further, it disclosed to
13   Stephens that the Debtor's status report mentioned a possible
14   settlement, which allegedly failed based on Stephens’ change of
15   mind.       Stephens expressed surprise at this news and indicated
16   that he was unaware of any settlement discussions.
17           He then inquired whether he, in fact, was represented by
18   Smith.      In response, the bankruptcy court stated:
19           Well, you have a couple options. You can fire
             Ms. Smith and hire another lawyer or you can fire
20           Ms. Smith and represent yourself. One way or the
             other, you have to do something to move this case ahead
21           from your stand point, and one way or another Ms. Smith
             has some obligations. I would suggest you start by
22           talking to Ms. Smith. If that's a dead end, then why
23
             3
24         (...continued)
     parties are required to file a joint status report at least
25   14 days prior to each scheduled conference.
26           4
            We exercise our discretion to take judicial notice of
27   documents electronically filed in the adversary proceeding. See
     Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R.
28   227, 233 n.9 (9th Cir. BAP 2003).

                                          3
 1        don't you [pick] up the phone and call [Debtor’s
          counsel] and see what you can work out.
 2
 3   Hr’g Tr. (Sept. 1, 2011) at 10:10-17.
 4   Stephens advised that he had called Smith multiple times, to no
 5   avail, and that he did not trust Smith.   The bankruptcy court
 6   emphasized that Stephens was obligated as the plaintiff to file a
 7   status report as required by the local bankruptcy rules,
 8   irrespective of Smith’s deficient representation.
 9        Smith filed a status report two weeks after the initial
10   status conference.   Both Smith and Stephens appeared at the
11   continued status conference.   The bankruptcy court apparently5
12   reemphasized the obligations of the parties in the adversary
13   proceeding; it also set a discovery cutoff deadline and ordered
14   Smith to lodge a proposed scheduling order.   Smith, in turn,
15   represented that the parties sought mediation and that a proposed
16   mediation order would be filed.   Notwithstanding the bankruptcy
17   court’s orders and Smith’s representations, Smith filed nothing.
18   Sometime during this time frame, however, Stephens filed a
19   complaint against Smith with the State Bar of California.
20        In anticipation of a continued status conference in February
21   of 2012, Debtor's counsel filed another LBR 7016-1 status report;
22   it was submitted as a unilateral status report.6    Neither Smith
23
          5
24          A transcript of the September 29, 2011 hearing was not
     included in the record on appeal and does not otherwise exist on
25   the adversary proceeding docket.
26        6
            LBR 7016-1(a)(3) provides that if a party fails to
27   cooperate in preparing a joint status report and an answer has
     been filed, the parties must each submit a unilateral status
28                                                      (continued...)

                                       4
 1   nor Stephens filed a status report.
 2        The Debtor next moved to dismiss the adversary proceeding
 3   with prejudice pursuant to LBR 7041-1 and Civil Rule 41(b).
 4   Among other things, he argued that Stephens' failure to comply
 5   with either the discovery deadline or LBR 7016-1 warranted
 6   dismissal.    The motion to dismiss was scheduled for mid-February.
 7   Neither Smith nor Stephens opposed the motion.
 8        At the February status conference, the discussion focused on
 9   the disintegration of the attorney-client relationship between
10   Stephens and Smith.   After hearing from both Stephens and Smith,
11   the bankruptcy court orally dismissed the adversary proceeding
12   based on lack of diligent prosecution.   An order confirming the
13   dismissal was entered shortly thereafter.
14        Acting pro se, Stephens moved for reconsideration of the
15   dismissal order.   He did not obtain a hearing date and did not
16   properly notice or serve the motion.   Two days later, the
17   bankruptcy court denied the reconsideration motion by writing
18   “motion denied” on its face.   Stephens appealed the denial to
19   this Panel.
20        A BAP panel vacated the order denying reconsideration and
21   remanded to the bankruptcy court for findings of fact and
22   conclusions of law.   On remand, the bankruptcy court prepared a
23   memorandum decision and supported its decision to deny relief
24   from the dismissal order based on both procedural deficiencies
25   and substantive legal grounds.   Stephens timely appealed.
26
27        6
           (...continued)
28   report at least seven days before the scheduled conference.

                                       5
 1                               JURISDICTION
 2        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 3   §§ 1334 and 157(b)(2)(I).   We have jurisdiction under 28 U.S.C.
 4   § 158.
 5                                   ISSUE
 6        Whether the bankruptcy court abused its discretion by
 7   denying the reconsideration motion?
 8                            STANDARD OF REVIEW
 9        We review the bankruptcy court’s denial of a motion for
10   reconsideration for an abuse of discretion.     Tracht Gut, LLC v.
11   Cnty. of L.A. Treasurer & Tax Collector (In re Tracht Gut, LLC),
12   503 B.R. 804, 809 (9th Cir. BAP 2014).
13        Review of an abuse of discretion determination involves a
14   two-prong test; first, we determine de novo whether the
15   bankruptcy court identified the correct legal rule for
16   application.   See United States v. Hinkson, 585 F.3d 1247,
17   1261-62 (9th Cir. 2009) (en banc).      If not, then the bankruptcy
18   court necessarily abused its discretion.      See id. at 1262.
19   Otherwise, we next review whether the bankruptcy court's
20   application of the correct legal rule was clearly erroneous; we
21   will affirm unless its findings were illogical, implausible, or
22   without support in inferences that may be drawn from the facts in
23   the record.    See id. (internal quotation marks omitted).
24                                DISCUSSION
25   A.   The bankruptcy court did not abuse its discretion in denying
26        reconsideration under Civil Rule 60(b) based on procedural
27        deficiencies.
28        The bankruptcy court first denied reconsideration based on

                                       6
 1   serious procedural defects, including failure to properly serve
 2   and notice the motion and a failure to set it for hearing.    Memo
 3   Dec. at 2-3.    Stephens failed to comply with several Bankruptcy
 4   Rules and several local bankruptcy rules.   On appeal, he attempts
 5   to explain his service errors, but his exhibits show service
 6   attempts, as evidenced by postal information on the face of the
 7   envelopes, only after he filed the reconsideration motion.
 8   Stephens fails to even discuss the other procedural defects
 9   identified by the bankruptcy court.
10        It is within the bankruptcy court’s discretion to enforce
11   the Bankruptcy Rules and local bankruptcy rules.   See Price v.
12   Lehtinen (In re Lehtinen), 332 B.R. 404, 412-14 (9th Cir. BAP
13   2005), aff’d, 564 F.3d 1052 (9th Cir. 2009); see also Weil v.
14   Neary, 278 U.S. 160, 169 (1929) (local rules have the force of
15   law) (citations omitted).   Under LBR 9013-1(h), the bankruptcy
16   court was entitled to deem Stephens’ noncompliance to be a
17   consent to the denial of the reconsideration motion.   The
18   bankruptcy court, thus, did not abuse its discretion in denying
19   reconsideration based on Stephens’ failure to comply with the
20   local bankruptcy rules and Bankruptcy Rules.
21   B.   The bankruptcy court did not abuse its discretion in denying
22        reconsideration under Civil Rule 60(b) on substantive legal
23        grounds.
24        The reconsideration motion did not identify the particular
25   legal rule under which it sought relief.    On remand, however, the
26   bankruptcy court applied Civil Rule 60(b) (incorporated into
27   adversary proceedings by Bankruptcy Rule 9024).    This was not
28

                                       7
 1   erroneous.7   In particular, it referenced the relevant language
 2   of Civil Rule 60(b)(1), (b)(2), (b)(3), and (b)(6) in its
 3   memorandum decision.
 4        Careful review of Stephens’ appellate brief as well as the
 5   record below, however, reveals that his arguments rest only on
 6   Civil Rule 60(b)(6) and, if liberally construed,8 the purported
 7   existence of “new evidence” under Civil Rule 60(b)(2).   Thus, we
 8   do not consider Civil Rule 60(b)(1) and (b)(3) in this appeal;
 9   Stephens did not raise theories for reconsideration thereunder
10   either below or on appeal.
11        1.   There was no error in denying relief from the dismissal
12             order under Civil Rule 60(b)(6).
13        Civil Rule 60(b)(6) provides for relief from a judgment or
14   order based on "any other reason that justifies relief."     This
15   provision serves as an equitable remedy, should be applied
16   sparingly, and is limited to “extraordinary circumstances [that]
17   prevented a party from taking timely action to prevent or correct
18   an erroneous judgment.”   Zurich Am. Ins. Co. v. Int'l Fibercom,
19   Inc. (In re Int'l Fibercom, Inc.), 503 F.3d 933, 941 (9th Cir.
20   2007) (citation omitted).    As a result, the movant “must
21   demonstrate both injury and circumstances beyond his control that
22   prevented him from proceeding with . . . the action in a proper
23
24
          7
            Where a party moves for reconsideration after the time for
25   appeal has passed, the motion is construed as a motion for relief
     from judgment under Civil Rule 60(b).
26
          8
27          We liberally construe a pro se’s brief and documents
     filed. See Nilsen v. Neilson (In re Cedar Funding, Inc.),
28   419 B.R. 807, 816 (9th Cir. BAP 2009).

                                       8
 1   fashion.”   Id.   (citation omitted).
 2        The Ninth Circuit has held that “an attorney's gross
 3   negligence [may] constitute[] an extraordinary circumstance
 4   warranting relief from a judgment dismissing the case for failure
 5   to prosecute under [Civil] Rule 41(b).”      Lal v. Cal., 610 F.3d
6   518, 521 (9th Cir. 2010); see also Cmty. Dental Serv. v Tani,
 7   282 F.3d 1164, 1169 (9th Cir. 2002).    An attorney’s gross
 8   negligence, thus, may insulate a client from responsibility for
 9   the attorney’s actions.   See Lal, 610 F.3d at 524 (gross
10   negligence creates an exception to the principle that “[a]n
11   attorney's actions are typically chargeable to his or her
12   client”); Tani, 282 F.3d at 1171 (an attorney's gross negligence
13   “vitiat[es] the agency relationship that underlies our general
14   policy of attributing to the client the acts of his attorney.”).
15        An attorney’s gross negligence, however, only provides an
16   excuse for a failure to properly prosecute a case to an unknowing
17   client.   See Tani, 282 F.3d at 1169 (“[C]ourts have concluded
18   that an unknowing client should not be held liable . . . [for] an
19   attorney's grossly negligent conduct, and that in such cases
20   sanctions should be imposed on the lawyer, rather than on the
21   faultless client.”) (emphasis added).    In Lal, for example, the
22   appellant-plaintiff did not know about problems in the
23   prosecution of her lawsuit until approximately eight months after
24   dismissal of the case. 610 F.3d at 522.   During those eight
25   months, plaintiff’s attorney fabricated status updates and
26   falsely advised that he was properly handling the case.     Id.
27   Similarly, in Tani, the appellant-defendant did not know that his
28   attorneys failed to answer the complaint, to participate in a

                                       9
 1   court-ordered settlement, or to oppose the plaintiff’s motion for
 2   a default judgment until the defendant received the entered
 3   default judgment by mail. 282 F.3d at 1167.   As in Lal, the
 4   defendant’s attorneys provided falsified status updates alleging
 5   productive progress in the litigation.   Id.    Thus, in these
 6   cases, the clients were ignorant of the true status of their
 7   litigation and the deficient conduct of their counsel until well
 8   after case dismissal or adverse judgment.
 9        Here, the bankruptcy court found that Smith had been both
10   “largely derelict” throughout the adversary proceeding and partly
11   responsible for Smith's inaction.    Memo Dec. at 4, 9.   Its
12   determination was based on the fact that Stephens was aware of
13   Smith's deficient representation, was warned of his personal
14   responsibility for advancing the litigation and complying with
15   court orders, and, thus, had a full and fair opportunity to avoid
16   the consequences of a failure to properly prosecute his case.
17        Stephens knew about Smith’s failure to properly prosecute
18   his case as early as the initial status conference.    He expressly
19   stated at that time that he did not trust Smith.    He also learned
20   of Smith’s involvement in settlement discussions with the Debtor
21   and his counsel – discussions apparently not disclosed to him.
22   These instances were each and in concert red flags as to the
23   problems with Smith’s representation.
24        At the initial status conference the bankruptcy court
25   further warned Stephens that even though Smith represented him,
26   he, as the plaintiff, was responsible for complying with the
27   local bankruptcy rules.   Stephens also attended the continued
28   status conference at the end of September 2011; he, thus, was

                                     10
 1   aware of the discovery cutoff deadline and the bankruptcy court’s
 2   orders regarding the proposed scheduling order and proposed
 3   mediation order.
 4        Contrary to Stephens’ claims at oral argument, the facts in
 5   this case do not match the most relevant facts in Lal or Tani.
 6   There is no indication that either Lal or Tani attended hearings
 7   or was otherwise placed on notice that either could not rely on
 8   their attorney’s alleged actions and representations before case
 9   dismissal or default judgment.   In other words, Lal and Tani
10   learned of their attorneys’ misdeeds long after the adverse
11   outcomes in their cases.   Stephens, on the other hand, was
12   completely and continuously aware of Smith’s errors months before
13   the adversary proceeding dismissal.
14        While there is some indication that Stephens sought to
15   retain other counsel, he ultimately failed to do so; and he
16   elected not to proceed pro se.   He also suggests that during this
17   time period he received some assurance from Smith that she was
18   protecting his position.   But, given Stephens’ continuous
19   knowledge of Smith’s consistent dereliction of duty, there is no
20   justification for deviating from the general rule that the client
21   is bound by the action or inaction of his attorney.   The
22   bankruptcy court did not err in holding Stephens’ responsible for
23   Smith’s actions and inaction and, thus, it did not abuse its
24   discretion in denying relief under Civil Rule 60(b)(6).9     The
25
26        9
            To be clear, we do not condone Smith's actions, and we
27   take no position as to Stephens' right to claim damages or to
     otherwise seek relief as a result of her failures to
28   appropriately represent him.

                                      11
 1   dismissal here correctly balanced the right of the Debtor to
 2   prompt resolution of the adversary proceeding against Stephens'
 3   right to prosecute the case.
 4        2.   There was no error in denying relief from the dismissal
 5             order under Civil Rule 60(b)(2).
 6        Civil Rule 60(b)(2) provides relief from a judgment or order
 7   based on "newly discovered evidence that, with reasonable
 8   diligence, could not have been discovered in time to move for a
 9   new trial under Civil Rule 59(b).”   In general, the evidence must
10   have existed at the time that the judgment or order was entered.
11   See Fantasyland Video, Inc. v. Cnty. of San Diego, 505 F.3d 996,
12   1005 (9th Cir. 2007); see also Jones v. Aero/Chem Corp., 921 F.2d
13   875, 878 (9th Cir. 1990) (relief under Civil Rule 60(b)(2)
14   requires that "the evidence (1) existed at the time of the trial,
15   (2) could not have been discovered through due diligence, and
16   (3) was of such magnitude that production of it earlier would
17   have been likely to change the disposition of the case.")
18   (citation and quotation marks omitted).   In other words, the
19   evidence must be “newly discovered” by the movant rather than
20   simply “new.”
21        We interpret Stephens’ argument on appeal as being based on
22   the fact that a declaration from Smith dated June 11, 2012; his
23   own declaration; and other disciplinary documents from the State
24   Bar of California relating to his state bar complaint against
25   Smith constitute newly discovered evidence of Smith’s gross
26   negligence.
27        None of these documents were before the bankruptcy court at
28   the time that it denied the reconsideration motion.   The record

                                    12
 1   shows that Stephens filed both the declarations and the state bar
 2   documents in the adversary proceeding on July 20, 2012 – months
 3   after the bankruptcy court denied the reconsideration motion.      We
 4   do not consider any documents that were not presented to the
 5   bankruptcy court in the first instance.10
 6        The only document attached to the reconsideration motion was
 7   a two-page copy of Smith’s attorney record from the state bar’s
 8   website.   Stephens, however, never explains – either below or on
 9   appeal – why he could not or did not discover this document
10   sooner and, more importantly, how this document would have aided
11   him in avoiding dismissal.
12        Included in Stephens’ appellate excerpts of record are other
13   state bar disciplinary documents that pre-date entry of the
14   orders dismissing the adversary proceeding and denying
15   reconsideration.   Stephens fails to advance any argument as to
16   why he could not obtain these documents, many of which are
17   publicly available on the state bar website, previously.    And,
18   again, he fails to explain how the introduction of these
19   documents would have changed the outcome in his adversary
20   proceeding.
21        In sum, none of the documents provided by Stephens support
22   Civil Rule 60(b)(2) relief.   As a result, the bankruptcy court
23   did not abuse its discretion in denying reconsideration
24   thereunder.
25
26        10
            In any event, the pertinent state court documents were
27   apparently entered by the state bar sometime in June of 2012 –
     once again, several months after the bankruptcy court dismissed
28   the adversary proceeding and denied reconsideration.

                                     13
 1                              CONCLUSION
 2        For the reasons discussed, we AFFIRM the bankruptcy court’s
 3   decision denying relief from the order dismissing the adversary
 4   proceeding.
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                                    14