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In re Lebbos

January 23, 2009



This matter is before the court on pro se appellants Betsey Warren Lebbos ("Lebbos"), Jason P. Gold ("Gold") and Thomas Carter's ("Carter") (collectively, "appellants") appeal of the bankruptcy court's entry of default judgment against them as a terminating sanction for appellants' discovery abuses. (Docket #s 31, 35, 37, 38.) Pursuant to 28 U.S.C. § 158(a), appellants elected appeal to this court.

The court has reviewed the parties' briefs and the underlying record, as contained within the excerpts of record submitted by both parties, and by this order, issues its decision AFFIRMING the bankruptcy court's entry of default judgment. This court cannot find that the bankruptcy court abused its discretion in entering default judgment against appellants as a sanction for discovery abuses.*fn1


On January 3, 2007, appellee Linda Schuette ("appellee") filed an adversary complaint against appellants. (Excerpts of Record ["ER"], K107-121.) The complaint sought avoidance of two alleged fraudulent transfers of a condominium located in Long Beach, California, recovery of that condominium, turnover of estate property and related declaratory relief. The first of the subject transfers was from Lebbos, as an individual, to Lebbos as Trustee of the Aida Madeline Lebbos No. 2 Trust (ER K118-120). The second transfer was from Lebbos as Trustree of the Aida Madeline Lebbos Trust II to Jason P. Gold and Thomas Carter as Trustees of the Aida Madeline Lebbos Trust II (ER K121).

After being served with the adversary complaint, appellants engaged in a litany of actions and activities designed to avoid substantive participation in the litigation, including numerous motions to dismiss, motions to transfer venue, motions to disqualify appellee as the Chapter 7 trustee in Lebbos' parent bankruptcy case, motions to disqualify the bankruptcy judge, and the refusal to participate in discovery. Many of these actions and activities were also engaged in by Lebbos in her parent bankruptcy case both before and after the filing of appellee's adversary complaint. The specifics of these actions and activities by appellants are thoroughly discussed in the bankruptcy court's three memorandum decisions entering default against appellants, and thus, the court will not repeat those facts here. (ER SSSS-1057-1101 [re: Lebbos]; ER NNN-680-710 [re: Gold]; MM-466-491 [re: Carter].) The facts are incorporated by reference.

On November 28, 2007, appellee filed motions in the adversary matter against appellants seeking sanctions pursuant to Rule 37. Appellee argued that sanctions were warranted based on appellants' failure to appear at their properly noticed depositions, their repeated failure to produce documents and based on the court's prior warning that terminating sanctions may be entered if appellants continued their conduct. Appellee requested either monetary or terminating sanctions.

The sanction motions were heard on January 16, 2008. By memorandum decisions of February 13, 20 and 21, 2008, the bankruptcy court granted the motions, striking appellants' answers and entering default against appellants as a terminating sanction pursuant to Rule 37. (Id.) Appellee subsequently filed an application for entry of default judgment, pursuant to those decisions, and the bankruptcy court entered judgment against appellants by orders of April 17, 2008. (ER B-4-8; ER A-1-3.)


A terminating sanction, whether default judgment against a defendant or dismissal of a plaintiff's action, entered pursuant to Federal Rule of Civil Procedure 37,*fn2 is reviewed for abuse of discretion. Conn. General Life Insur. Co. v. New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 2007). "Dismissal is a harsh penalty and is to be imposed only in extreme circumstances" involving "willfulness, bad faith and fault."

Id.; In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 460 F.3d 1217, 1226 (9th Cir. 2006) (internal quotations and citations omitted). However, a dismissal sanction should be overturned only where the reviewing court has a "definite and firm conviction that [the decision] was clearly outside the acceptable range of sanctions." Toth v. Trans World Airlines, 862 F.2d 1381, 1385 (9th Cir. 1988) (citations omitted). The issue is not whether this court would have, as an original matter, imposed the sanctions chosen by the bankruptcy court but whether that court exceeded the limits of its discretion. Id. A determination that court orders were disobeyed is entitled to considerable weight since the trial judge is best equipped to assess the circumstances of the noncompliance. Id.; See also Rio Properties, Inc. v. Rio International Interlink, 284 F.3d 1007, 1021-22 (9th Cir. 2002).


While appellants raise a multitude of issues in their briefs, the only issue properly raised on this appeal is the propriety of the bankruptcy court's entry of default judgment. Only that judgment is an appealable order properly considered by this court. 28 U.S.C. § 158(a)(1).*fn3 More specifically, the singular issue presented by this appeal is the propriety of the bankruptcy court's entry of default judgment as a terminating sanction pursuant to Rule 37. Both sides' briefs discuss the general standards for entry of default judgment under Rule 55, and whether under those standards the bankruptcy court's ultimate order entering judgment was supported by sufficient evidence and/or the well-pleaded allegations of the complaint. See Cashco Financial Servs., Inc. v. McGee, 359 B.R. 764, 771-74 (9th Cir. BAP 2007). However, that is not the proper inquiry. Here, default judgment was entered as a sanction under the court's authority under Rule 37.*fn4 Therefore, the court does not consider the parties' arguments addressing Rule 55 standards; its analysis herein is limited to whether the bankruptcy court's sanction of default judgment was within the "acceptable range of sanctions" for the conduct in this case. Toth, 862 F.2d at 1385.

Before imposing the sanction of dismissal under Rule 37(b)(2), five factors must be considered: (1) the public's interest in expeditious resolution of litigation; (2) the court's need to manage its docket; (3) the risk of prejudice to the party seeking sanctions; (4) the public policy favoring disposition of cases on their merits; and (5) the availability of less drastic sanctions. Toth, 862 F.2d at 1385. Within the fifth factor, this court must consider whether the bankruptcy court considered lesser sanctions, whether it tried them, and whether it warned appellants about the possibility of case-dispositive sanctions. Conn. General Life, 482 F.3d at 1096. "This test, [however], is not mechanical." Id. Rather, it is meant to provide the trial court with a "way to think about what to do, not a set of conditions precedent for sanctions or a script that the [trial] court must follow[.]" Id.

In this case, the bankruptcy court in three lengthy memorandum decisions, one directed at each of the three appellants, explicitly and thoroughly discussed each of these five factors. The court's extended discussion leaves no doubt that there were ample grounds in this case to impose terminating sanctions. The court will specifically ...

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