In re: Leyla Fatima

FILED MAY 29 2018 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT 3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT [4] 5 In re: ) BAP No. CC-17-1235-LSKu ) 6 LEYLA FATIMA, ) Bk. No. 8:15-bk-15581-MW ) 7 Debtor. ) Adv. No. 8:16-ap-01175-MW ______________________________) 8 ) LEYLA FATIMA, ) 9 ) Appellant, ) 10 ) v. ) M E M O R A N D U M* 11 ) JANUARY STERN, ) 12 ) Appellee. ) 13 ______________________________) 14 Submitted Without Argument on May 24, 2018 15 Filed - May 29, 2018 16 Appeal from the United States Bankruptcy Court for the Central District of California [17] Honorable Mark S. Wallace, Bankruptcy Judge, Presiding 18 _________________________ 19 Appearances: Appellant Leyla Fatima, pro se on brief; Neal S. Zaslavsky on brief for Appellee. 20 _________________________ 21 Before: LAFFERTY, SPRAKER, and KURTZ, Bankruptcy Judges. [25] 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 Debtor Leyla Fatima appeals the bankruptcy court’s entry of 2 a default judgment finding her debt to Plaintiff-Appellee January 3 Stern nondischargeable under §§ 523(a)(2) and (a)(6).1 The 4 bankruptcy court struck Ms. Fatima’s answer and entered the 5 default judgment as a terminating sanction after Ms. Fatima 6 failed to comply with the bankruptcy court’s order granting 7 Ms. Stern’s motion to compel Ms. Fatima to provide the initial 8 disclosures required under Civil Rule 26(a), incorporated in 9 bankruptcy via Rule 7026. 10 Under the facts presented, we find no abuse of discretion in 11 the award of terminating sanctions. Accordingly, we AFFIRM. 12 FACTS 13 In December 2012 Ms. Stern obtained an $815,000 judgment 14 against Ms. Fatima in Orange County Superior Court on a cause of 15 action for intentional misrepresentation. In the course of that 16 litigation, Ms. Fatima failed to appear at her deposition and a 17 subsequent hearing on Ms. Stern’s motion for sanctions; the state 18 court judge thus awarded discovery sanctions of $28,546.61 in 19 addition to the principal amount of the judgment. 20 Ms. Fatima filed a chapter 7 petition in May 2013. That 21 case was dismissed on the chapter 7 trustee’s motion because 22 Ms. Fatima failed to appear at her continued section 341 meeting. 23 Ms. Fatima filed a second chapter 7 petition in November 2015. 24 Ms. Stern timely filed an adversary proceeding seeking to except [1] 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 , all 27 “Rule” references are to the Federal Rules of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal 28 Rules of Civil Procedure. -2- 1 the state court judgment from discharge under §§ 523(a)(2) and 2 (a)(6) and for denial of discharge under various subsections of 3 § 727(a). Ms. Fatima filed an answer, and the parties thereafter 4 met and conferred as required under Civil Rule 26(f), agreeing to 5 exchange initial disclosures by November 30, 2016. At 6 Ms. Fatima’s request, Ms. Stern’s counsel, Neal Zaslavsky, agreed 7 to extend the deadline to January 16, 2017, but Ms. Fatima did 8 not timely provide the disclosures or contact Mr. Zaslavsky to 9 request a further extension. Accordingly, on January 23, 2017, 10 Ms. Stern filed and served a motion to compel Ms. Fatima’s 11 initial disclosures. Ms. Fatima did not file a response or 12 appear at the hearing on the motion to compel. 13 On February 27, 2017, the bankruptcy court entered an order 14 granting the motion to compel. The order required Ms. Fatima to 15 make all required disclosures by March 15, 2017, and to pay 16 Ms. Stern monetary sanctions of $4,000 by April 15, 2017. The 17 order warned: “Defendant Leyla Fatima is further advised that her 18 failure to comply with this Court’s Order will result in the 19 Court striking her answer and entering a default against her, 20 absent extraordinary circumstances.” 21 Ms. Fatima again failed to make the required disclosures. 22 Accordingly, on March 16, 2017, Ms. Stern filed a motion for 23 terminating sanctions against Ms. Fatima. Ms. Fatima did not 24 file a written response, but she appeared at the hearing on 25 April 19, 2017. At that hearing, Ms. Fatima indicated that she 26 had the initial disclosures with her and could “turn them in,” 27 although she apparently did not do so. She explained that the 28 delay was due to “confusion on my part not understanding exactly -3- 1 what it was that I needed to do.” She alluded to having been in 2 Australia and not being properly served; she therefore asked the 3 court for another extension of time to make the disclosures, 4 which the bankruptcy court denied. 5 Mr. Zaslavky advised the court that although Ms. Fatima had 6 not paid the $4,000 in monetary sanctions awarded in the court’s 7 February 27 order, he had agreed to an arrangement for Ms. Fatima 8 to pay the sanctions by August 1. 9 After hearing argument, the bankruptcy court granted the 10 motion for terminating sanctions pursuant to Civil Rule 11 37(b)(2)(A)(iii), applicable via Rule 7037. The court thereafter 12 issued a memorandum decision and order striking Ms. Fatima’s 13 answer, directing the clerk of the court to enter default, and 14 ordering Ms. Stern to file a motion for entry of default judgment 15 by August 31, 2017. In the memorandum decision, the bankruptcy 16 court found: 17 The evidence here shows that Ms. Fatima, although self-represented, is no stranger to the judicial 18 process in general and discovery rules in particular – and sanctions imposed when discovery rules are 19 violated. . . . [S]anctions of over $28,000 were imposed against her in May 2012 in the Orange County 20 Superior Court action when she failed to appear at her duly noticed deposition. Any reasonable person (and 21 probably not a few unreasonable people as well) would understand the seriousness of discovery obligations and 22 the seriousness of potential sanctions for discovery violations as a result of that experience. [23] Soon after Ms. Fatima’s main bankruptcy case 24 began, she continued a pattern and practice of being obstructive and non-cooperative with respect to the 25 obligations imposed by the legal process. At her section 341(a) examination, she refused to provide most 26 of the documents she was ordered to provide as part of that examination, and she refused to answer most of the 27 questions posed to her during that examination. 28 As reviewed above, this pattern and practice of -4- 1 obstruction and non-cooperation continued during this adversary proceeding. Despite the fact that she was 2 given one chance after another to “get right” with her obligations regarding discovery – and knowing full well 3 the consequences of disregarding these obligations – she continually failed to comply. Even the issuance of 4 this Court’s order compelling initial disclosures and the imposition of $4,000 in sanctions failed to 5 motivate her to comply. 6 Ms. Fatima is not a person who is unfamiliar with the legal process and who is unsure of how to proceed. 7 Rather, she is a person who has a long history of disregarding legal obligations and Court orders. She 8 has not shown any physical or mental infirmity that prevented her from complying with the Court’s order. 9 Nor has she shown any other good cause for her failure to comply. The Court has observed her demeanor during 10 hearings and does not believe she is a truthful, honest individual. The Court concludes and specifically finds 11 that her failure to comply with this Court’s order on the motion to compel is due to her (1) willfulness, 12 (2) bad faith and (3) fault. 13 Memorandum Decision and Order at 4-5. 14 After entry of default, Ms. Stern filed a motion for entry 15 of default judgment, supported by the declarations of Ms. Stern 16 and her counsel, numerous exhibits, and a request for judicial 17 notice. A few days later, Ms. Fatima filed a motion to set aside 18 entry of default. The bankruptcy court issued an order finding 19 the motion untimely but permitted hearing on July 26, 2017, the 20 date set for hearing on Ms. Stern’s motion for entry of default 21 judgment, and extended the deadline for Ms. Stern to file an 22 opposition. 23 At the hearing on the motions, the bankruptcy court 24 permitted Ms. Fatima to argue at length. She indicated, first, 25 that she was not necessarily familiar with the procedures 26 involved in an adversary proceeding and that she had not delayed 27 in an attempt to “drag this process out.” Second, she described 28 her efforts between December 2016 and May 2017 to get her son -5- 1 into rehab for a drug addiction. Third, she expressed concerns 2 that information she provided to Ms. Stern’s counsel might be 3 revealed to her allegedly abusive ex-husband and used against 4 her. She accused Mr. Zaslavsky of mocking her during her 2004 5 examination regarding an alleged sexual assault she had suffered, 6 and asserted that, given her post-traumatic stress disorder, 7 “this all re-traumatizes me.” She admitted, however, that at no 8 point had she contacted Mr. Zaslavsky to explain her need for 9 additional time. 10 The court denied with prejudice Ms. Fatima’s motion to set 11 aside the default on two grounds. First, the court found that 12 the motion was untimely. Second, the court found that Ms. Fatima 13 had not satisfied her burden under Civil Rule 60(b), applicable 14 via Rule 9024, to show either newly discovered evidence or 15 excusable neglect. 16 Ms. Fatima presented no argument in opposition to the motion 17 for entry of default judgment, and the bankruptcy court granted 18 it. The court entered a judgment on August 1, 2017 finding both 19 the state court judgment and the state court sanctions award 20 nondischargeable under §§ 523(a)(2) and (a)(6). Additionally, 21 the judgment provided that Ms. Fatima was still liable for the 22 $4,000 monetary sanction previously imposed by the court, along 23 with interest at the federal judgment rate.2 24 Ms. Fatima timely appealed. [2] The bankruptcy court later entered an amended judgment 28 clarifying that the judgment was intended to be a final judgment. -6- 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 in 7 entering a default judgment against Ms. Fatima as a terminating 8 sanction. 9 STANDARD OF REVIEW 10 We review discovery sanctions, including terminating 11 sanctions, for abuse of discretion. Conn. Gen. Life Ins. Co. v. 12 New Images of Beverly Hills, 482 F.3d 1091, 1096 (9th Cir. 2007). 13 To determine whether the bankruptcy court has abused its 14 discretion, we conduct a two-step inquiry: (1) we review de novo 15 whether the bankruptcy court identified the correct legal rule to 16 apply to the relief requested and (2) if it did, whether the 17 bankruptcy court’s application of the legal standard was 18 illogical, implausible, or without support in inferences that may 19 be drawn from the facts in the record. United States v. Hinkson, [20] 585 F.3d 1247 , 1262–63 & n.21 (9th Cir. 2009) (en banc). 21 Factual findings are reviewed for clear error. Where there 22 are two permissible views of the evidence, the factfinder’s 23 choice between them cannot be clearly erroneous. Anderson v. 24 City of Bessemer City, 470 U.S. 564, 574 (1985). Findings based 25 on determinations of witness credibility are entitled to special 26 deference. Oney v. Weinberg (In re Weinberg), 410 B.R. 19 , 28 27 (9th Cir. BAP 2009), aff’d, 407 F. App’x 176 (9th Cir. 2010) 28 (citing Anderson, 470 U.S. at 573 ). -7- 1 DISCUSSION 2 Civil Rule 37(b)(2)(A) provides in relevant part that if a 3 party fails to obey an order to provide discovery, including an 4 order under Rule 37(a), the court may issue further “just 5 orders,” including “striking pleadings in whole or in part” and 6 “rendering a default judgment against the disobedient party.” 7 Civil Rule 37(b)(2)(A)(iii) and (vi). Where the sanction results 8 in default, the sanctioned party’s violations must be due to 9 willfulness, bad faith or fault of the party. Hester v. Vision 10 Airlines, Inc., 687 F.3d 1162, 1169 (9th Cir. 2012). In this 11 context, willfulness, bad faith, or fault may be established by 12 showing disobedient conduct not outside the control of the 13 litigant. Henry v. Gill Indus., Inc., 983 F.2d 943, 948 (9th 14 Cir. 1993). A court may consider prior misconduct when weighing 15 a sanctions motion. Adriana Int’l Corp. v. Thoeren, 913 F.2d 16 1406, 1411 (9th Cir. 1990). 17 In the Ninth Circuit, the bankruptcy court must apply a 18 five-part test to determine whether a case-dispositive sanction 19 under Rule 37(b)(2) is just: (1) the public’s interest in 20 expeditious resolution of litigation; (2) the court’s need to 21 manage its dockets; (3) the risk of prejudice to the party 22 seeking sanctions; (4) the public policy favoring disposition of 23 cases on their merits; and (5) the availability of less drastic 24 sanctions. As to the fifth factor, the bankruptcy court must 25 have considered and tried lesser sanctions and warned the 26 recalcitrant party about the possibility of case-dispositive 27 sanctions. Connecticut Gen. Life Ins. Co., 482 F.3d at 1096 . 28 Here, as noted, the bankruptcy court found that Ms. Fatima’s -8- 1 failure to comply with the court’s order on the motion to compel 2 was due to willfulness, bad faith and fault based on her history 3 of disregarding court rules and orders and her failure to show a 4 physical or mental infirmity or other good cause for her failure 5 to comply. Ms. Fatima does not explicitly dispute this finding. 6 The court then applied the Ninth Circuit test and found that 7 the factors weighed in favor of a terminating sanction. The 8 bankruptcy court found, first, that the adversary proceeding had 9 been pending for more than nine months when the court first 10 considered the motion for sanctions in April 2017 and that no 11 initial disclosures had occurred, thus thwarting the public 12 interest in expeditious resolution of the litigation. 13 Second, the court found that its docket would be “hopelessly 14 overburdened” if all litigants behaved as Ms. Fatima had behaved 15 in the adversary proceeding, noting that Ms. Fatima’s conduct had 16 “significantly impeded resolution of this action, caused delay 17 and [had] adversely impacted the Court’s ability to adhere to a 18 trial schedule. . . .” 19 Third, the bankruptcy court found that Ms. Stern had been 20 prejudiced because Ms. Fatima’s refusal to provide initial 21 disclosures had impaired Ms. Stern’s ability to prepare for 22 trial, Ms. Stern having asserted that she needed documents and 23 information under Ms. Fatima’s possession and control. 24 Fourth, while acknowledging that public policy favors the 25 adjudication of cases on their merits, the court noted that “this 26 factor lends little support to a party whose responsibility it is 27 to move a case toward disposition but whose conduct impedes 28 progress in that direction,” citing Allen v. Bayer Corp. (In re -9- 1 Phenylpropanolamine (PPA) Prods. Liab. Litig.), 460 F.3d 1217 , 2 1228 (9th Cir. 2006). 3 Finally, as to lesser sanctions, the bankruptcy court found 4 that even though the state court and the bankruptcy court had 5 imposed monetary sanctions on Ms. Fatima for discovery abuses, 6 those sanctions had not “achieved the effect of making Ms. Fatima 7 understand the importance of complying with rules of procedure 8 and court orders.” Accordingly, the bankruptcy court concluded 9 that lesser sanctions would be “utterly useless.” The court also 10 noted that it had specifically warned Ms. Fatima about the 11 possibility of terminating sanctions if she failed to comply with 12 the order on the motion to compel. 13 The bankruptcy court noted that it had considered the fact 14 that Ms. Fatima was not represented by counsel but observed that 15 the majority of pro se litigants “act in good faith, comply with 16 the rules, get through the process and sometimes prevail.” The 17 court concluded that Ms. Fatima was not such a litigant, 18 specifically finding that “Ms. Fatima is acting in utmost bad 19 faith with respect to this case in general and this discovery 20 matter in particular.” 21 On appeal, Ms. Fatima focuses her argument on alleged verbal 22 and psychological abuse she has suffered at the hands of 23 Ms. Stern and Mr. Zaslavsky. Specifically, she complains about 24 questions asked at her 341 meeting and 2004 examination that were 25 not “asset-related.”3 She argues that the bankruptcy court “had [3] 27 Ms. Fatima’s reply brief focuses almost exclusively on the 2004 examination and includes a copy of the transcript (BAP Dkt. 28 (continued...) -10- 1 a duty to hold [Ms. Stern and her counsel] accountable and demand 2 that they remain focused on the asset related topics.” She 3 contends that the bankruptcy court did not take into account 4 evidence of Ms. Fatima’s diagnosis of PTSD, anxiety, and 5 depression, and her fear over alleged connections between 6 Ms. Stern and her counsel and Ms. Fatima’s ex-husband, an alleged 7 abuser. Finally, she argues that the bankruptcy court did not 8 take her seriously and that she did not feel she was being heard. 9 None of these arguments persuade us that the bankruptcy 10 court abused its discretion in granting terminating sanctions to 11 Ms. Stern. The record reflects that Ms. Fatima has a history of 12 ignoring her legal obligations despite being afforded significant 13 leeway. Ms. Stern granted a nearly two-month extension to 14 Ms. Fatima to provide the initial disclosures, and the bankruptcy 15 court went out of its way to allow Ms. Fatima to present her 16 case. The court permitted Ms. Fatima to argue at length at the 17 hearing on Ms. Stern’s motion for terminating sanctions even 18 though Ms. Fatima had not filed a written opposition to that 19 motion. The court also permitted extensive argument on 20 Ms. Fatima’s untimely motion to set aside default. Despite these 21 opportunities, Ms. Fatima never presented coherent, specific 22 argument or evidence explaining why she did not provide Ms. Stern 23 with her Civil Rule 26 initial disclosures. 24 Moreover, the bankruptcy court found Ms. Fatima’s 25 explanations not credible, and we will not disturb that finding [3] (...continued) 28 No. 40). -11- 1 on appeal. The court’s credibility finding is bolstered by the 2 fact that Ms. Fatima’s arguments were inconsistent. She 3 initially stated at the April hearing that she had the 4 disclosures and the delay was due to her having been preoccupied 5 for several months trying to get her son into rehab. At the same 6 time, she asserted that she was afraid to provide any information 7 to Ms. Stern because of concerns that such information would be 8 shared with Ms. Fatima’s ex-husband. 9 In any event, Ms. Fatima has not demonstrated that the 10 bankruptcy court erred in finding that a terminating sanction was 11 appropriate. As noted, Ms. Fatima was given every opportunity to 12 comply with her discovery obligations. In its order on the 13 motion to compel, the court imposed a not insignificant monetary 14 sanction on Ms. Fatima and provided ample warning that a 15 terminating sanction would result if Ms. Fatima failed to comply 16 with the order. The court found that Ms. Fatima had a long 17 history of disregarding legal obligations and court orders and 18 had engaged in a pattern of obstruction and non-cooperation in 19 the bankruptcy case. Moreover, the court found not credible 20 Ms. Fatima’s rambling and inconsistent explanations for her 21 noncompliance. Ms. Fatima has not shown that these findings were 22 illogical, implausible, or without support in the record, or that 23 the bankruptcy court otherwise abused its discretion. 24 CONCLUSION 25 For the reasons explained above, we AFFIRM the bankruptcy 26 court’s entry of a default judgment as a terminating sanction for 27 Ms. Fatima’s failure to comply with the court’s order to provide 28 initial disclosures. -12-