United States District Court, E.D. California
In re WILLIAM MATTHEW DUGO, Debtor.
v.
WILLIAM MATTHEW DUGO, Appellee. BANK OF STOCKTON, Appellant, Bankr. Adversary No. 14-02152 Bankr. No. 14-22435
OPINION
WILLIAM B. SHUBB UNITED STATES DISTRICT JUDGE
Appellant
Bank of Stockton (the “Bank”), a secured
creditor, brought an adversary proceeding against appellee
and debtor William Matthew Dugo, seeking a determination that
the obligation Dugo owes it is nondischargeable. Presently
before the court is the Bank’s appeal from the
bankruptcy court’s judgment and award of attorney fees
in favor of Dugo.[1] (Docket No. 21.)
I.
Factual and Procedural Background
The
Bank issued Dugo a loan and line of credit secured by
Dugo’s livestock. (Bank’s Br. at 7 (Docket No.
21).) Dugo defaulted and the Bank unsuccessfully attempted to
collect the livestock collateral to pay down the line of
credit. (Id.) On March 11, 2014, Dugo filed a
voluntary Chapter 7 bankruptcy petition in the Eastern
District of California bankruptcy court. (Excerpts of Record
(“ER”) at 17, Adversary Compl. ¶ 7.) The
Bank then filed an adversary proceeding alleging willful and
malicious injury, 11 U.S.C. § 523(a)(6), and extension,
renewal, or refinancing of credit obtained by use of a false
statement in writing, Id. § 523(a)(2)(B), and
requested a determination that the debts owed by Dugo were
nondischargeable. (ER at 19, 29-39, Adversary Compl.
¶¶ 9, 105-19, 120-27.) The parties conducted
discovery, including production of documents and depositions.
On June
17, 2015, the bankruptcy court issued an order setting trial
for September 10, 2015 and stating that the “Alternate
Direct Testimony Procedure” under Eastern District of
California Bankruptcy Court Local Rule 9017-1 would apply to
the proceeding. (ER at 81-82, Order Setting Trial.) The
purpose of this procedure is “to streamline the
adducement of direct testimony in trials . . . so as to
reduce trial time without sacrificing due process and a fair
trial.” E.D. Cal. Bankr. L.R. 9017-1(a)(1). It requires
the plaintiff to submit to opposing counsel a declaration of
the direct testimony of each witness, executed under penalty
of perjury, and the exhibits compromising the
plaintiff’s case in chief fourteen days before trial.
Id. L.R. 9017-1(b)(1). The defendant must submit its
declarations and exhibits seven days before trial.
Id. L.R. 9017-1(b)(2). If a party fails to comply,
“the court may issue appropriate sanctions, ”
including “exclusion of Direct Testimony Statement(s)
and the live direct testimony of the witness(es) giving such
statements, exhibits, or other evidence presented which were
not timely exchanged or presented, or such lesser sanction as
appropriate and reasonable.” Id. L.R.
9017-1(d).
After
the Bank took Dugo’s deposition on July 16, 2015, the
parties agreed to stipulate to a joint list of exhibits
before trial in order to avoid submitting foundational
testimony at trial. (Bank’s Br. at 9; Dugo’s Br.
at 4 (Docket No. 22).) Dugo alleges, however, that the
Bank’s attorney promised to get it a list of witnesses
and exhibits well in advance of trial but that no formal
agreement was reached. (Dugo’s Br. at 4.)
Rather
than submitting a proposed list of witnesses and exhibits
early, the Bank’s counsel emailed Dugo on August 27,
2015--the day the declarations and exhibits were due under
Bankruptcy Rule 9017-1--indicating that he was attaching the
declarations but that they were “presently unsigned, as
we reserve the right to make changes as necessary.”
(Id.; Dugo’s App. at 3 (Docket No. 22-1).) The
next day, Dugo informed the Bank that it had failed to
properly attach the declarations and the Bank therefore sent
a second email attaching the still- unsigned declarations.
(Dugo’s Br. at 5.) The Bank alleges that the
declarations identified the exhibits the Bank intended to
rely on at trial, nearly all of which were documents produced
during discovery and to which Dugo had had access for months.
(Bank’s Br. at 9.) On September 3, 2015, in compliance
with Bankruptcy Rule 9017-1, Dugo provided signed
declarations of witnesses and exhibits to the Bank.
(Dugo’s Br. at 5.)
On
September 4, 2015, the Bank sent Dugo a proposed stipulation
of trial exhibits. (Id.) The Bank alleges that it
attempted to send this exhibit list on August 27, 2015 but it
was not sent due to “an apparent internal error.”
(Bank’s Br. at 10.) Dugo did not agree to the
stipulated list because it was submitted after the Alternate
Dispute Procedure deadline and the exhibits were not attached
to the list. (Dugo’s Br. at 5.)
On
September 8, 2015, Dugo filed objections to the use of the
three unsigned declarations and the admission of the
Bank’s exhibits. (Id.) That same day, Dugo
received a disc from the Bank with its seventy-six exhibits,
consisting of approximately 2, 464 pages, and the three
declarations signed under penalty of perjury. (Id.
at 6.)
At the
September 10, 2015 trial, the bankruptcy court granted
Dugo’s motion to deny the introduction of the
Bank’s exhibits and declarations. (ER at 240-41, Tr. of
Sept. 10, 2015 Proceedings.) The bankruptcy court found that
the Bank failed to comply with Bankruptcy Rule 9017-1 despite
having ample time to submit signed declarations and exhibits
and Dugo was prejudiced by receiving such a “huge
number of exhibits” only two days before trial,
preventing him from preparing his defense. (Id. at
235-39.) The bankruptcy court explained that the purpose of
Bankruptcy Rule 9017-1 is for a plaintiff to present its case
“to the other side so they have an opportunity to
prepare their case for the Court.” (Id. at
239.) The bankruptcy court judge further reasoned that
because he is a part-time judge, he needs to proceed with his
cases and does not have time for continuances. (Id.
at 240.) The bankruptcy court denied the Bank’s request
for a continuance or any other lesser sanction. (Id.
at 241.) As a result, the Bank did not have any evidence or
testimony to present and the parties did not proceed to
trial. (Id.) The bankruptcy court entered judgment
in favor of Dugo, (id. at 241-42), and the Bank
filed a timely appeal, (id. at 245, Notice of
Appeal).
Dugo
then filed a motion for attorney’s fees of $19, 340,
and the Bank moved for a stay pending its appeal.
(Dugo’s Br. at 7; ER at 248-258, 288.) The bankruptcy
court denied the Bank’s motion for a stay and awarded
Dugo’s attorney, Douglas Jacob, $15, 000 as
“partial reimbursement for the total [attorney’s]
fees incurred.” (ER at 355, Tr. of November 10, 2015
Hearing.) The bankruptcy court explained that it was not
making a “final order” because “[a]t the
conclusion of the litigation in this matter the Court will
make a final determination upon motion of the parties for the
final resolution of attorney’s fees.”
(Id. at 354-56.) The bank filed a timely appeal of
this fee award. (Id. at 359.) On February 9, 2016,
this court granted the Bank’s motion for a stay of the
attorney’s fees award pending appeal. (Feb. 9, 2016
Order at 6 (Docket No. 12).)
Presently
before the court is the Bank’s appeal of both the
bankruptcy court’s exclusion of its Alternate Direct
Testimony declarations and exhibits, which led to final
judgment in favor of Dugo, and its award of attorney’s
fees.
II.
Discussion
This
court has jurisdiction to hear the Bank’s appeal
pursuant to 28 U.S.C. § 158(a)(1). See 28 U.S.C. §
158(a)(1) (“The district courts of the United States
shall have jurisdiction to hear appeals . . . from final
judgments, orders, and decrees . . . of bankruptcy judges
entered in cases and proceedings referred to the bankruptcy
judges under section 157.”). Both the bankruptcy
court’s sanction excluding the Bank’s evidence
and award of attorney’s fees are reviewed for an abuse
of discretion. In re Reimers, Civ. No. 12-7848 ABC, 2013 WL
9994337, at *2 (C.D. Cal. Feb. 12, 2013) (“A
court’s imposition of sanctions is reviewed for an
abuse of discretion, which means that it should not be
reversed ‘absent a definite and firm conviction that
the district court made a clear error of
judgment.’”) (citation omitted); see also
City of Long Beach v. Standard Oil Co. of Cal., 46
F.3d 929, 936 ...