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In re Dugo

United States District Court, E.D. California

August 3, 2016

WILLIAM MATTHEW DUGO, Appellee. BANK OF STOCKTON, Appellant, Bankr. Adversary No. 14-02152 Bankr. No. 14-22435



         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 ...

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