FILED
JUN 28 2019
NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
In re: BAP Nos. CC-18-1225-TaLS
CC-18-1226-TaLS
SHELLIE MELISSA HALPER, (related)
Debtor. Bk. No. 1:09-bk-23807-GM
SHELLIE MELISSA HALPER, Adv. No. 1:11-ap-01317-GM
Appellant,
v. MEMORANDUM*
SOLOMON M. COHEN,
Appellee.
*
This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value, see 9th Cir. BAP Rule 8024-1.
SHELLIE MELISSA HALPER, Adv. No. 1:11-ap-01319-GM
Appellant,
v.
TWIN PALMS LENDING GROUP, LLC,
Appellee.
Argued and Submitted on May 23, 2019
at Pasadena, California
Filed – June 28, 2019
Appeal from the United States Bankruptcy Court
for the Central District of California
Honorable Geraldine Mund, Bankruptcy Judge, Presiding
Appearances: Blake Joseph Lindemann of Lindemann Law Group PLC
argued for appellant Shellie Melissa Halper; Allan D.
Sarver of the Law Offices of Allan D. Sarver argued for
appellees Solomon M. Cohen and Twin Palms Lending
Group, LLC.
Before: TAYLOR, LAFFERTY, and SPRAKER, Bankruptcy Judges.
2
INTRODUCTION
Plaintiffs Solomon Cohen and Twin Palms Lending Group LLC
(collectively, “Lenders”) filed adversary proceedings against debtor-
defendant Shellie Halper in 2011. Five years later, Ms. Halper had not yet
appeared for her deposition. After numerous attempts to obtain
cooperation and participation in this critical discovery, Lenders sought and
obtained terminating sanctions and a default judgment. On appeal, we
affirmed those decisions; Ms. Halper’s subsequent appeal is pending before
the Ninth Circuit.
Apparently unwilling to rely solely on the Ninth Circuit appeal,
Ms. Halper also attempted a flanking maneuver: she filed a motion seeking
an indicative ruling on an underlying Civil Rule 60 motion to vacate the
default judgment.1 Her goal was to obtain a victory that supported her
Ninth Circuit appeal. But the bankruptcy court denied the motion.
And, because the bankruptcy court did not err, we AFFIRM.
FACTS
We discuss the underlying facts in brief; we discuss them in more
depth in our earlier decision in these cases. See Halper v. Twin Palms Lending
Group, LLC (In re Halper), BAP Nos. CC-17-1171-FSTa, CC-17-1172-FSTa,
1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101–1532, all “Rule” references are to the Federal Rules
of Bankruptcy Procedure, and all “Civil Rule” references are to the Federal Rules of
Civil Procedure.
3
2018 WL 1354431, (9th Cir. BAP Mar. 13, 2018).
In October 2009, Ms. Halper filed a chapter 11 bankruptcy petition; it
was later converted to chapter 7. Approximately two years later, Lenders
filed adversary proceedings against Ms. Halper seeking a
nondischargeability determination under § 523(a)(2)(A).
The litigation got off to a slow start. Ms. Halper and Lenders
stipulated to stay the adversary proceedings given Ms. Halper’s desire to
protect her Fifth Amendment privilege against self-incrimination in alleged
related criminal investigations. The bankruptcy court entered a consistent
order and set a status conference for the next year. Over the next three
years, the parties requested six continuances of the discovery stay for a
variety of reasons, including Ms. Halper’s continued assertion of her Fifth
Amendment privilege and the pending resolution of state court claims
against her business partner.
Eventually, in 2015, Lenders were ready to move forward with
discovery and sought to terminate the stay. They argued that there was no
pending FBI investigation and that they had obtained a $23,000,000 fraud
judgment against Ms. Halper’s business partner. Ms. Halper, on the other
hand, apparently wanted the litigation to languish. She reasserted her Fifth
Amendment privilege arguments and expressed ignorance of the cessation
of a criminal investigation.
The bankruptcy court then heard argument and terminated the stay.
4
It determined that the statute of limitations on the alleged criminal charges
had run, and it ordered the parties to recommence litigation and discovery.
And at a later hearing, the bankruptcy court informed Ms. Halper’s counsel
that she would need to show a good-faith basis for a continued assertion of
Fifth Amendment protections. The parties represented that Ms. Halper’s
deposition was scheduled.
But things still went slowly. Shortly before the deposition date,
Ms. Halper obtained new counsel. The parties then stipulated to continue
her deposition to September—then to October—then to January 2016—then
to March—and then to an unspecified date. Lenders finally asked the
bankruptcy court to set the date. It ordered that the deposition would occur
in May.
A week before the May deposition, Ms. Halper’s counsel said she
would not attend. The parties rescheduled for June. Two days before the
June deposition, Ms. Halper’s counsel again said she would not attend. The
parties stipulated to a September date, but Lenders reserved rights to seek
sanctions. An hour before the September deposition, Ms. Halper’s counsel,
yet again, said that she would not appear.
Not surprisingly, Lenders requested an order to show cause why
Ms. Halper should not be held in contempt for repeatedly failing to sit for
her deposition; they sought terminating sanctions under Civil Rule 37. In
the alternative, they sought monetary sanctions, but they argued that
5
monetary sanctions would be insufficient to compel Ms. Halper’s
compliance.
Over Ms. Halper’s opposition, the bankruptcy court granted the
motion, issued an order to show cause, and determined that cause for
sanctions existed. But while the bankruptcy court expressed disapproval of
Ms. Halper’s “abusive” conduct, it exercised restraint. It allowed
Ms. Halper to avoid terminating sanctions by paying compensatory
monetary sanctions and sitting for her deposition on January 31, 2017.
Lenders requested more than $100,000 in compensatory sanctions, but the
bankruptcy court limited the monetary sanction to $40,000 payable in
$10,000 increments; three of the payments were due before the deposition.
The bankruptcy court’s order warned Ms. Halper that failure to comply
would result in terminating sanctions.
Ms. Halper made only one installment payment. Terminating
sanctions followed; the bankruptcy court struck Ms. Halper’s answer,
directed entry of default, and directed Lenders to file a motion for default
judgment.
Lenders so moved. Ms. Halper did not file a written response, but, at
the hearing on the motion, she requested additional time to pay off the
outstanding sanctions award. The bankruptcy court denied the oral request
and then entered default judgment against Ms. Halper in the two
adversary proceedings. Ms. Halper appealed, we affirmed the bankruptcy
6
court’s entry of default judgment and imposition of terminating sanctions,
and Ms. Halper appealed to the Ninth Circuit where briefing continues.
Ms. Halper, through new counsel, later filed a request for an
indicative ruling on a Civil Rule 60(b) motion to vacate the default
judgments. She argued that relief was appropriate under Civil Rule
60(b)(1), (b)(5), and (b)(6), because she had secured the money to pay the
remaining $30,000 in compensatory sanctions, and under Civil Rule
60(b)(2), because she had newly discovered a pending investigation by a
United States Attorney’s Office in Washington.
The bankruptcy court’s tentative ruling indicated that it would deny
the motion. It explained that the newly available money did not warrant
relief under Civil Rule 60(b)(1), (b)(5), or (b)(6); it noted that Ms. Halper’s
alleged 2018 discovery of a new investigation was irrelevant to her 2017
failure to pay sanctions; and it rejected Ms. Halper’s suggestion that her
prior attorney’s alleged error (advice not to attend a deposition without
also obtaining a stay of the deposition) qualified as excusable neglect. It
emphasized that Ms. Halper was aware that failure to sit for her deposition
would lead to sanctions. In addition, the bankruptcy court also noted that
Ms. Halper failed to establish that she had a meritorious defense to the
underlying lawsuit but instead focused solely on why she did not pay the
monetary sanctions.
Three days later, at 4:09 p.m. on the day before the hearing,
7
Ms. Halper filed a supplemental declaration; she alleged for the first time
that she had a meritorious defense.
The next morning, the bankruptcy court heard oral argument and
refused to deviate from the tentative ruling. The bankruptcy judge
acknowledged the supplemental declaration but stated: “as far as I’m
concerned the declaration was late and not even to be considered.” Hr’g Tr.
(Aug. 7, 2018) 26:4–6. The bankruptcy judge clarified, on Ms. Halper’s
counsel’s question, that this was part of her ruling. And to reiterate, the
bankruptcy judge concluded:
So as far as I’m concerned, her declaration is late. There’s no
reason to look at it. It’s beyond the reply. I mean, you’ve got a
reply and now it’s beyond the reply. It’s actually in response to
the tentative ruling. But to the extent that I should look at it I
still don’t find it to be convincing that I should change my . . .
ruling.
Id. at 27:1–7.
The bankruptcy court then entered an order denying the motion for
the reasons identified in the tentative ruling and on the record at the
hearing.
Ms. Halper timely appealed.2
2
The bankruptcy court also entered an order certifying the appeal to the Ninth
Circuit. 28 U.S.C. § 158(d)(2). But it does not appear that the parties timely requested
permission to take a direct appeal to the court of appeals. Fed. R. Bankr. P. 8008(g).
8
JURISDICTION
Ms. Halper erroneously suggests that the pending appeal deprived
the bankruptcy court of jurisdiction to decide the motion. She is wrong.
Because she filed a request for an indicative ruling, Rule 8008 allows a
bankruptcy court to evaluate timely-filed motions for relief where it would
otherwise lack decisional authority because an appeal is pending. Fed. R.
Bankr. P. 8008(a). In particular, the bankruptcy court may defer considering
the motion, deny the motion, state that it would grant it if the appellate
court remands, or state that the motion raises a substantial issue. Fed. R.
Bankr. P. 8008(a)(1)–(3). Ms. Halper expressly provided the bankruptcy
court with the ability to rule; she cannot gainsay this decisional
authorization now that she dislikes the outcome. Accordingly, the
bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(I).
We have jurisdiction over final orders and, with leave, interlocutory
orders. 28 U.S.C. § 158(a). A more involved jurisdictional question relates to
the finality of denial of an indicative ruling order—neither party discusses
this. Nor has the Ninth Circuit definitively addressed the finality (i.e.,
appealability) of an order denying an indicative ruling request under either
Rule 8008 or its counterpart Civil Rule 62.1.
In a recent unpublished decision, the Ninth Circuit treated the denial
of a Civil Rule 62.1 motion as a final order. Prosterman v. Am. Airlines, Inc.,
747 F. App’x 458, 463 (9th Cir. 2018), cert. denied, 139 S. Ct. 1342 (2019)
9
(affirming denial of a Civil Rule 62.1 motion); see also Russell Rd. Food &
Beverage, LLC v. Galam, 585 F. App’x 745, 746 (9th Cir. 2014). That said, the
Ninth Circuit previously expressed doubts about this. Halloway v. Horn, 701
F. App’x 608, 610 (9th Cir. 2017) (“While several other circuits have decided
(or assumed) that denial of a motion under Rule 62.1 is an appealable order
in the case of a final appeal, we are not convinced that this court has
jurisdiction to entertain such an appeal in this case.”(citations omitted)).
But we are aware of no circuit-level decision treating a merits-based Civil
Rule 62.1 or Rule 8008 decision as interlocutory. The lack of any contrary
out of circuit authority coupled with the Ninth Circuit’s most recent
implicit view of finality satisfies us that the order we review is final. To the
extent we are wrong, we conclude that leave to appeal is warranted. We
thus have jurisdiction over this appeal.
ISSUE
Did the bankruptcy court abuse its discretion when it denied
Ms. Halper’s motion for an indicative ruling on a motion to set aside the
default judgment?
STANDARDS OF REVIEW
We review denial of a motion for an indicative ruling for an abuse of
discretion. Jackson v. Allstate Ins. Co., 785 F.3d 1193, 1206 (8th Cir. 2015). We
also review the denial of a motion to set aside a default judgment under
Civil Rule 60(b)(1) or Civil Rule 55(c) for an abuse of discretion. Brandt v.
10
Am. Bankers Ins. Co. of Fla., 653 F.3d 1108, 1110 (9th Cir. 2011).
A bankruptcy court abuses its discretion if it applies the wrong legal
standard, misapplies the correct legal standard, or makes factual findings
that are illogical, implausible, or without support in inferences that may be
drawn from the facts in the record. See TrafficSchool.com, Inc. v. Edriver Inc.,
653 F.3d 820, 832 (9th Cir. 2011) (citing United States v. Hinkson, 585 F.3d
1247, 1262 (9th Cir. 2009) (en banc)).
DISCUSSION
We start by identifying the controlling authority.
A. The Falk factors govern.
Civil Rule 55 governs entry of default under Civil Rule 55(a) and
entry of default judgment under Civil Rule 55(b). Fed. R. Civ. P. 55(a), (b);
Fed. R. Bankr. P. 7055. And Civil Rule 55(c) governs the setting aside of a
default or a default judgment: “The court may set aside an entry of default
for good cause, and it may set aside a final default judgment under Rule
60(b).” Fed. R. Civ. P. 55(c).
When a defendant seeks relief from a default judgment under Civil
Rule 60(b)(1), including based on excusable neglect, the court applies the
three factors governing the inquiry into “good cause” under Civil
Rule 55(c). United States v. Signed Personal Check No. 730 of Yubran S. Mesle,
615 F.3d 1085, 1091 (9th Cir. 2010); see Brandt, 653 F.3d at 1111 (9th Cir.
2011) (citing Mesle, 615 F.3d at 1091). These three factors are commonly
11
referred to as the “Falk factors” because they were first articulated in Falk v.
Allen, 739 F.2d 461, 463 (9th Cir. 1984) (per curiam). United States v. Aguilar,
782 F.3d 1101, 1105 (9th Cir. 2015).
The Falk factors are: “(1) whether [the party seeking to set aside the
default] engaged in culpable conduct that led to the default; (2) whether [it]
had [no] meritorious defense; or (3) whether reopening the default
judgment would prejudice the other party.” Id. (quoting Mesle, 615 F.3d at
1091) (alterations in original) (internal quotation marks omitted). A
judgment by default is a “drastic step” and appropriate only in “extreme
circumstances”; instead, cases should be decided, when possible, on the
merits. Mesle, 615 F.3d at 1091 (quoting Falk, 739 F.2d at 463).3
3
Even if a motion to vacate a default judgment is based on excusable neglect, the
Falk factors govern. Franchise Holding II, LLC. v. Huntington Restaurants Grp., Inc., 375
F.3d 922, 927 (9th Cir. 2004) (“Because ‘good cause’ is typically enough to demonstrate
‘excusable neglect,’ no reason exists to analyze these criteria separately.”); TCI Grp. Life
Ins. Plan v. Knoebber, 244 F.3d 691, 696 (9th Cir. 2001), overruled on other grounds by
Egelhoff v. Egelhoff ex rel. Breiner, 532 U.S. 141 (2001) (“The Falk factors quite effectively
capture in the default judgment context the very equitable factors involved in the
balance between the competing interests in assuring substantial justice and in
protecting the finality of judgments that underlies Rule 60(b)(1). . . . So the Falk factors
are, as far as we can see, quite sufficient after Pioneer Investment to guide district courts’
exercise of discretion under Rule 60(b)(1) in the context of default judgments.”). As a
result, Ms. Halper’s arguments about the factors from Pioneer Inv. Servs. Co. v. Brunswick
Assocs. Ltd. P’ship, 507 U.S. 380 (1993) are off point. And, in any event, although the
bankruptcy court did not say the words Pioneer or Falk, it engaged in the correct
equitable analysis. Bateman v. U.S. Postal Serv., 231 F.3d 1220, 1224 (9th Cir. 2000).
12
B. The bankruptcy court did not abuse its discretion in
providing an indicative ruling denying the motion to vacate
the default judgment.
Trial courts have considerable discretion in deciding a motion to
vacate a default judgment. For a court to deny a motion for relief, it needs
to find only one of the Falk factors present. Aguilar, 782 F.3d at 1105. That
said, a court may find that one factor—or even two—is present and yet still
grant relief. Brandt, 653 F.3d at 1112.
Ms. Halper’s culpable conduct led to the default judgment. The
Ninth Circuit has held that a “defendant’s conduct [is] culpable for
purposes of the Falk factors where there is no explanation of the default
inconsistent with a devious, deliberate, willful, or bad faith failure to
respond.” Emp. Painters’ Tr. v. Ethan Enters., Inc., 480 F.3d 993, 1000 (9th Cir.
2007).
Here, Ms. Halper’s culpable conduct led to the default; it was entered
based on terminating sanctions, which, in turn, were based on Ms. Halper’s
continued refusal to sit for her deposition and her failure to pay monetary
sanctions.
Ms. Halper’s appellate arguments are not persuasive.
First, she wrongly states that “all evidence” exonerates her. To start,
she never presented any relevant evidence in support of her motion to
vacate the judgment. Instead, the “evidence” she refers to is the declaration
she filed the evening before the hearing. But the bankruptcy judge correctly
13
noted that the declaration was late and concluded that there was no reason
to consider it. Ms. Halper never disputes this ruling on appeal. In any
event, Ms. Halper’s position reduces to this: her conduct was not culpable
because she has a meritorious defense. But this conflates two of the
Falk factors. And the Ninth Circuit has clearly held that the Falk factors are
disjunctive—the court may deny relief if any one of the three factors is
present. Brandt, 653 F.3d at 1111.
Second, Ms. Halper’s alleged cooperation agreement with a United
States Attorney’s Office does not absolve her of culpability. As the
bankruptcy court found, Ms. Halper did not know about the Washington
investigation when she refused to sit for her deposition; it thus cannot
positively impact her then-state of mind. In addition, after the bankruptcy
court ordered discovery to go forward, Ms. Halper never raised the specter
of an investigation again. So the bankruptcy judge concluded that
Ms. Halper’s “failure to make discovery from that point forward was
strictly willful . . . .” That finding is not clearly erroneous.
Third, Ms. Halper repeats her argument that the bankruptcy court
was “setting her up to fail” because she informed it that she could not pay
the unpaid $30,000 sanction. But we have already rejected this position.
Halper, 2018 WL 1354431, at *7 (“The bankruptcy court acknowledged
Ms. Halper’s concerns by revising the proposed payment schedule. (The
bankruptcy court was not required to accept her unsworn and
14
uncorroborated statement that she could not afford to pay the monetary
sanctions on the prescribed schedule.)”).4
As a result, Ms. Halper’s culpable conduct led to entry of default; this
justifies denial of her motion under the Falk factors.
Ms. Halper did not present evidence of a meritorious defense.
Ms. Halper argues that the bankruptcy court improperly increased the
applicable evidentiary standard. In the Ninth Circuit, the appropriate
standard for “meritorious defense” is clear:
A district court may deny relief under Rule 60(b)(1) when the
moving party has failed to show that she has a “meritorious
defense.” “All that is necessary to satisfy the ‘meritorious
defense’ requirement is to allege sufficient facts that, if true,
would constitute a defense: ‘the question whether the factual
allegation [i]s true’ is not to be determined by the court when it
decides the motion to set aside the default. Rather, that
question ‘would be the subject of the later litigation.’ ” Mesle,
615 F.3d at 1094 (alteration in original) (citation omitted)
(quoting TCI Grp., 244 F.3d at 700). This approach is consistent
with the principle that “the burden on a party seeking to vacate
a default judgment is not extraordinarily heavy.” TCI Grp.,
244 F.3d at 700.
Aguilar, 782 F.3d at 1107.
4
The bankruptcy court’s payment schedule was intentional and reasonable. First,
the bankruptcy court did not require Ms. Halper to pay all of the requested fees;
instead, it required her to reimburse some of Lenders’ attorneys’ fees. Second, the
bankruptcy court did not require her to pay the full amount before sitting for her
deposition. Instead, it gave her time to obtain the funds.
15
We acknowledge that the bankruptcy court’s recitation of the
appropriate legal standard for evaluating the assertion of a meritorious
defense may have been less than crisp and, indeed, suggested that a higher
burden might be appropriate in the present case. But the bankruptcy court
never enforced an improper standard. Instead, it concluded that
Ms. Halper provided no evidence of a meritorious defense. This was
correct. Ms. Halper cannot circumvent this finding by presenting selective,
out-of-context quotes from the bankruptcy court’s decision.
Ms. Halper attempts to salvage her appeal by referring to the
declaration that she filed the evening before the hearing and several days
after the bankruptcy court posted a tentative ruling identifying her failure
to provide any evidence. But as already discussed, the bankruptcy court
concluded that the declaration was late and thus not properly before it;
again, Ms. Halper never disputes this ruling on appeal. As a result, the
bankruptcy court did not err when it concluded that Ms. Halper failed to
establish a meritorious defense. This justifies denial of the motion.
Reopening the default judgment would prejudice Lenders.
Ms. Halper argues that the bankruptcy court’s conclusion that Lenders
would be prejudiced by a delay in resolving the case was insufficient
prejudice under relevant law. She is, in part, correct. “Prejudice requires
greater harm than simply that relief would delay resolution of the case.”
Lemoge v. United States, 587 F.3d 1188, 1196 (9th Cir. 2009). Under Falk, the
16
question for prejudice “is whether [the plaintiff’s] ability to pursue [its]
claim will be hindered.” Falk, 739 F.2d at 463.
But Ms. Halper overlooks that, in this case, attorney’s fees are a
significant source of prejudice. We acknowledge Ms. Halper’s supposedly
sincere desire to cure the underlying default by paying the remaining
$30,000 in monetary sanctions. But that misses the point—the monetary
sanctions were designed to compensate Lenders for the extensive and
expensive litigation involved with compelling Ms. Halper to sit for a
deposition. That litigation continues on appeal. The goal of the sanctions
was to partially return Lenders to their position before Ms. Halper’s
obstructive behavior. Ms. Halper’s insistence that she can now pay $30,000
ignores that Lenders have incurred and are prejudiced by additional
attorney’s fees defending their judgment on appeal. Thirty thousand
dollars is no longer an adequate compensatory sanction. This prejudice, of
course, is curable. See Brandt, 653 F.3d at 1110 n.1, 1112 (affirming district
court’s granting a motion to vacate a default judgment subject to the
condition of the defaulting party paying the non-defaulting party’s
attorney’s fees to oppose the motion and to appear at the hearing and
noting that the prejudice could be cured). But that cure would require a
payment of more than $30,000.
And Lenders have also been prejudiced in a way that is not curable.
They have placed their entire theory of the case on the record in the context
17
of the default and default prove-up. Ms. Halper, having had this
knowledge in her possession for nearly two years, now has the opportunity
to frame her defense in a calculated and precise way that was not available
before.
The bankruptcy court was not required to explicitly state the words
“extreme circumstances.” Ms. Halper argues that the bankruptcy court did
not consider whether extreme circumstances justified entry of default
judgment. We disagree.
To the extent Ms. Halper suggests that a failure to distinctly say
“extreme circumstances” is a per se abuse of discretion, she is wrong.
Aguilar, 782 F.3d at 1106 (“The ‘extreme circumstances’ policy language
was intended to remind courts that default judgments are the exception,
not the norm, and should be viewed with great suspicion. When courts
apply these factors, they must keep this policy concern in mind. However,
nothing in Falk (or any other published decision) requires courts, in
addition to applying these three factors, to articulate why a particular case
presents ‘extreme circumstances.’ Our court has applied the Falk factors
many times to ensure that default judgments are entered only in extreme
circumstances, but has never imposed the ‘magic words’ requirement that
Appellants seek.”). And, in any event, there were extreme
circumstances—they justified imposition of terminating sanctions, a
decision which we have already affirmed on appeal. To put it simply,
18
Ms. Halper has intentionally avoided sitting for her deposition, which was
noticed at least nine times, since September 2011.5
CONCLUSION
Based on the foregoing, we AFFIRM.
5
On appeal, Ms. Halper states that her former counsel’s actions amount to fraud
on the bankruptcy court under Civil Rule 60(d). She did not timely present this
argument to the bankruptcy court, which reserved ruling on the matter. As Ms. Halper
is pursuing these claims in a separate venue, we consider them no further.
19