Kostecki v. Sutton (In re Sutton)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 2 months ago

Citation:

In re Sutton, No. EC-14-1204-JuFD (9th Cir. B.A.P. Dec. 3, 2015).

Tag(s):

Ruling:

A case-terminating sanction may not be imposed absent bad faith or consideration of a more moderate penalty, such as a continuance. Not-for-publication memorandum.

Procedural context:

Plaintiffs commenced a nondischargeability adversary proceeding against debtor. The Eastern District of California Bankruptcy Court ordered that the proceeding be governed by its LBR 9017-1. Under that local rule, the parties were required to submit direct-testimony declarations and associated exhibits 14 days before trial. Plaintiffs submitted their declarations and exhibits seven days late, i.e., seven days before trial. Debtor moved in limine to exclude plaintiffs’ declarations and exhibits. The bankruptcy court granted the motion in limine and entered judgment for debtor. On appeal, the B.A.P. reversed and remanded.

Facts:

The bankruptcy court’s exclusions of plaintiff’s declarations at trial was tantamount to a sanction. The sanction of exclusion was unwarranted under the bankruptcy court’s inherent powers, local rules, and FRCP 37(c)(1). An inherent-powers sanction may not be imposed absent a finding of bad faith by the party to be sanctioned. Mere tardiness or inadvertent conduct do not warrant inherent-power sanctions. Before a court may enter sanctions under a local rule, the court must, among other things, consider the usefulness of more moderate penalties, and the court must find that the party to be sanctioned acted recklessly, with gross negligence, or willfully or that the party repeatedly disregarded local rules. Here, the bankruptcy court did not consider a more moderate penalty before imposing what was essentially a case-terminating sanction. A continuance is the preferred sanction. The bankruptcy court also did not explicitly find that plaintiffs’ late filing was reckless or willful or involved repeated disregard of court rules or gross negligence. Thus, the local-rule sanction power did not authorize exclusion of plaintiffs’ late-filed declarations and exhibits. Neither did FRCP 37(c)(1) authorize the exclusion. By its terms, FRCP 37 applies only to discovery or disclosure violations, of which there were none here.

Judge(s):

Meredith A. Jury, Robert J. Faris, and Randall L. Dunn, Bankruptcy Judges.

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