In re: Tony Pham and Lindsie Kim Pham, 9th Cir. BAP (2015)

7/25/2019 In re: Tony Pham and Lindsie Kim Pham, 9th Cir. BAP (2015)

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UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. CC- 14- 1342- Ki Br D)

TONY PHAM and LI NDSI E KI M ) Bk. No. SA 12- 18847- CBPHAM, )

) Adv. No. SA 12- 01619- CBDebt or s. )

))

TONY PHAM; LI NDSI E KI M PHAM; )J ONATHAN T. NGUYEN, )

)Appel l ant s, )

)v. ) O P I N I O N)

J EFFREY I . GOLDEN, Chapter 7 )Tr ust ee, )

)Appel l ee. )

______________________________)

Ar gued and Submi t t ed on J ul y 23, 2015,at Pasadena, Cal i f or ni a

Fi l ed - Sept ember 2, 2015

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Cent r al Di str i ct of Cal i f or ni a

Honor abl e Cat her i ne E. Bauer , Bankrupt cy J udge, Pr esi di ng

Appear ances: Appel l ant s Tony Pham, Li ndsi e Ki m Pham and J onat hanT. Nguyen di d not appear at or al ar gument ; Ashl eyMcDow of Baker & Host et l er LLP ar gued f or appel l eeJ ef f r ey I . Gol den, Chapter 7 Tr ust ee.

Bef or e: KI RSCHER, BRANDT1 and DUNN, Bankr upt cy J udges.

FILEDSEP 02 2015

SUSAN M. SPRAUL, CU.S. BKCY. APP. PANOF THE NINTH CIRCU

1 Hon. Phi l i p H. Br andt , Bankrupt cy J udge f or t he West er nDi st r i ct of Washi ngt on, si t t i ng by desi gnat i on.


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KI RSCHER, Bankr upt cy J udge:

Tony and Li ndsi e Ki m Pham ( Debtor s) and t hei r at t or ney,

J onat han T. Nguyen ( Nguyen) ( col l ect i vel y, Appel l ant s) , appeal

an or der compel l i ng Debt or s t o appear f or deposi t i ons and t o

pr oduce cer t ai n document s and sanct i oni ng Appel l ant s f or t he

chapt er 72 t r ust ee s expenses i ncur r ed i n br i ngi ng t he mot i on t o

compel under Local Bankrupt cy Rul es ( LBR) 1001- 1( f ) , 7026- 1( c)

and 9011- 3. 3

Debt ors have al r eady produced t he r equi r ed document s and have

been deposed. The $17, 515 sanct i on f or at t orney s f ees has beenpai d. Appel l ant s chal l enge onl y t he sanct i ons awar d. Because t he

bankrupt cy cour t coul d not r el y on t hese l ocal r ul es t o sanct i on

Appel l ant s, we VACATE and REMAND.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

J ef f r ey I . Gol den ( Tr ust ee) was appoi nted chapt er 7 t r ust ee

i n Debt or s case. He schedul ed and hel d at l east 15 cont i nued

341( a) meet i ngs of cr edi t or s t o i nt er vi ew Debt or s and t o r evi ew

document s.

The Tr ust ee f i l ed an adver sar y compl ai nt agai nst t wo

2 Unl ess speci f i ed ot her wi se, al l chapt er , code and r ul er ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, andt he Feder al Rul es of Bankrupt cy Procedur e, Rul es 1001- 9037. Al lCi vi l Rul e r ef er ences ar e t o Feder al Rul es of Ci vi l Pr ocedur e.

3 The l ocal r ul es r ef er enced ar e t he Local Bankrupt cy Rul esf or t he U. S. Bankr upt cy Cour t f or t he Cent r al Di st r i ct ofCal i f or ni a. We not e t hat t he bankrupt cy cour t amended i t s l ocalr ul es ef f ect i ve J anuar y 5, 2015; however , i n r evi ewi ng t he publ i cnot i ce associ at ed wi t h t he revi si ons, we concl ude that t hebankrupt cy cour t di d not amend t he t hr ee l ocal r ul es di scussedher ei n.

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i ndi vi dual s, Phat The Bui ( Bui ) and Thuan Tr an ( Tran) . 4 The

Tr ust ee al l eged t hat Mr s. Pham had f r audul ent l y t r ansf er r ed f our

condomi ni um uni t s appr oxi mat el y si xt een mont hs pr i or t o t he

pet i t i on dat e t hr ee uni t s to Bui and one t o Tr an. Debt or s

di scl osed t he t r ansf er s t o Bui i n t hei r st at ement of f i nanci al

af f ai r s; t hey di d not di scl ose t he t r ansf er t o Tr an. The Tr ust ee

sought t o avoi d and r ecover t he t r ansf er r ed pr oper t y under t he

Code and Cal i f orni a l aw. Nguyen, who has pr act i ced l aw f or

t went y- one years, r epr esent ed def endant s Bui and Tran. Debt ors

were not named as def endants and have never been par t i es t o t hat

act i on.A. Events leading to the Trustees motion to compel

The Tr ust ee i ssued subpoenas t o Debt or s pur suant t o Ci vi l

Rul e 45, commandi ng themt o appear f or deposi t i ons and t o pr oduce

document s. Nguyen accept ed ser vi ce of t he subpoenas on behal f of

Debt or s vi a emai l . Debt or s di d not obj ect t o t he subpoenas.

J ust pr i or t o t hi s, t he Tr ust ee s counsel Mi chael Del aney

( Del aney) emai l ed Nguyen r egardi ng dates f or Debt ors t o be

deposed. Ul t i matel y, Del aney schedul ed Mr s. and Mr . Pham s

deposi t i ons f or Mar ch 17 and Mar ch 19, 2014, r espect i vel y. On

Mar ch 17, Nguyen and Mr s. Pham ar r i ved at Del aney s of f i ce pr i or

t o t he schedul ed 10: 00 a. m. st ar t t i me. The at t or ney i nt endi ng t o

conduct Mr s. Pham s deposi t i on, Ashl ey McDow ( McDow) , was not

t her e and nei t her wer e the cour t r epor t er or t he Vi et namese

i nt erpr eter . McDow ar r i ved at 10: 45 a. m. and asked Nguyen and

Mr s. Pham t o wai t f or t he i nt er pr et er , who was r unni ng l at e. The

4 Gol den, Tr ust ee, v. Bui , Case No. SA 12: bk- 18847- CB, Adv.Pr o. No. SA 12- ap- 01619- CB ( Bankr . C. D. Cal . ) .

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cour t r epor t er arr i ved at 11: 45 a. m. Ar ound noon, when t he

i nt er pr et er had st i l l not ar r i ved, McDow of f er ed t o t ake Mr s.

Pham s deposi t i on on March 19 at 1: 00 p. m. at Nguyen s of f i ce and

cr edi t her t he two hour s she and Nguyen wer e l ef t wai t i ng.

McDow t ook Mr s. Pham s deposi t i on as pl anned on Mar ch 19

bet ween 1: 13 p. m. and 6: 00 p. m. McDow and Del aney ar r i ved ar ound

1: 00 p. m. wi t hout enough copi es of cer t ai n document s, so Nguyen

of f er ed t o l et Del aney use hi s of f i ce s copi er , at no char ge, t o

make t he necessary copi es, appr oxi mat el y 180 pages. Nguyen sai d

t hat at 4: 00 p. m. Del aney and McDow uni l ateral l y t ook a 20- 25

mi nut e l unch br eak whi l e he, Mr s. Pham, t he cour t r epor t er and t hei nt er pr et er wai t ed. At t hi s poi nt , t he st or i es di ver ge. Nguyen

cl ai ms he t ol d McDow dur i ng nor mal breaks and agai n at 5: 30 p. m.

t hat he had t o l eave pr ompt l y at 6: 00 p. m. McDow cont ends t hat at

6: 00 p. m. Nguyen pr ematur el y t ermi nated Mr s. Pham s deposi t i on

wi t hout ever advi si ng her of hi s i nt ent t o do so. McDow bel i eved

she had 55 mi nut es r emai ni ng of her al l owed t i me t o depose Mr s.

Pham, af t er deduct i ng t i me f or br eaks.

Accor di ng t o t he deposi t i on t r anscr i pt , at 5: 54 p. m. Nguyen

st at ed f or t he recor d t hat he had t ol d McDow dur i ng t he l ast

r ecess he had t o l eave at 6: 00 p. m. t o pi ck up hi s son f r om soccer

pr act i ce. McDow st at ed t hat Nguyen had j ust t ol d her f or t he

f i r st t i me f i ve mi nut es bef or e of hi s need t o l eave by 6: 00 p. m.

Nguyen t hen i ndi cat ed t hat he woul d speak to McDow l at er about

when she coul d compl ete her l ast hour of deposi t i on wi t h Mr s.

Pham. McDow pr oceeded f or t he next si x mi nut es wi t h quest i ons t o

Mr s. Pham. At 6: 00 p. m. , Nguyen announced he was l eavi ng. Whi l e

McDow t r i ed t o ask Nguyen about schedul i ng the l ast hour , he

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wal ked of f .

As f or Mr . Pham, Nguyen cont ended t hat he t ol d McDow on Mar ch

17 t hat Mr . Pham woul d not be appear i ng f or hi s deposi t i on or

pr oduci ng document s on March 19, because he had r ecent l y suf f ered

a st r oke. He al so gave McDow a copy of a doct or s note. McDow

cont ended t hat she di d not l ear n of Mr . Pham s nonappear ance unt i l

Nguyen handed her t he doct or s not e, whi ch was i l l egi bl e except

f or Mr . Pham s name and t he word s t r oke.

A ser i es of emai l s between counsel ensued. On March 21,

Del aney emai l ed Nguyen i nqui r i ng about when Mr s. Pham s deposi t i on

coul d be compl eted. Del aney warned t hat i f he hear d nothi ng f r omNguyen by 2: 00 p. m. March 25, he woul d f i l e a mot i on t o compel .

Not hear i ng f r om Nguyen, Del aney sent a second emai l on March 25

at 5: 27 p. m. , st at i ng hi s i nt ent i on t o pr epar e a mot i on t o compel

Debt or s deposi t i ons, as t he doct or s not e f ai l ed t o pr ovi de any

j ust i f i cat i on f or denyi ng t he Tr ust ee s r i ght t o depose Mr . Pham.

Del aney r equest ed t hat counsel meet and conf er by Apr i l 1 t o

r esol ve any di scover y di sput es, ci t i ng LBR 7026- 1( c) ( 2) .

Nguyen responded t o Del aney s emai l on March 26, i ndi cat i ng

t hat he was not pr esent i ng Mr s. Pham f or f ur t her deposi t i on based

on t he March 17 i nci dent and t he event s t hat occur r ed on March 19.

On Apr i l 15, anot her at t or ney f or t he Tr ust ee, Yul i a Fradki n

( Fr adki n) , emai l ed Nguyen r emi ndi ng hi m t hat he had f ai l ed t o

meet and conf er wi t h t he Tr ust ee s counsel by Apr i l 1 t o di scuss

Mr s. Pham s l ast hour of deposi t i on pur suant t o LBR 7026- 1( c) ( 2) .

Fr adki n warned t hat i f Nguyen di d not pr ovi de a date and t i me t o

meet and conf er wi t hi n the next t wo days, t hey woul d pr oceed wi t h

pr epar i ng a j oi nt st i pul at i on of any r emai ni ng di scover y di sput es.

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I f t hei r i ssues coul d not be r esol ved, Fradki n war ned t hey woul d

f i l e a mot i on t o compel t he r emai nder of Mr s. Pham s deposi t i on.

Fr adki n request ed f ur t her i nf or mat i on about Mr . Pham s medi cal

condi t i on and i nqui r ed whether or not he woul d be appear i ng f or

deposi t i on.

On Apr i l 18, Fr adki n sent Nguyen anot her emai l r egar di ng hi s

appar ent r ef usal t o meet and conf er about Debt or s deposi t i ons.

Fradki n war ned t hat i f Nguyen di d not pr ovi de i nf or mat i on f or t he

j oi nt st i pul at i on of r emai ni ng di scover y di sput es by Apr i l 21, t he

Tr ust ee s counsel woul d f i l e a mot i on t o compel Debt or s

deposi t i ons. Fr adki n advi sed Nguyen t hey woul d seek sanct i onsunder LBR 1001- 1( f ) , 7026- 1( c) ( 4) , 9011- 3 and 9020- 1.

Nguyen r esponded t o Fr adki n s Apr i l 18 emai l , st at i ng t hat he

had al r eady met and conf er r ed wi t h McDow and then agai n wi t h

Del aney.

B. The motion to compel

1. The Trustees motion

Shor t l y t her eaf t er , t he Tr ust ee moved f or an or der : ( 1)

compel l i ng Debt ors t o at t end deposi t i ons and to pr oduce document s;

and ( 2) awar di ng at t or ney s f ees and cost s j oi nt l y and sever al l y

agai nst Appel l ant s ( Mot i on t o Compel ) . 5 Over al l , t he Tr ust ee

bl amed Nguyen f or t he i nt ent i onal and pur posef ul i nt er f er ence i n

di scover y, whi ch t he Tr ust ee al l eged sever el y di sadvant aged hi s

5 The Tr ust ee r ei t er at ed some di scover y i ssues he hadr ecent l y wi t h Nguyen and def endant s Bui and Tran. I n t hat case,t he Tr ust ee pr evai l ed on a mot i on t o compel Bui and Tran t oproduce document s. The Trust ee st at ed t hat he was now movi ng f orat t or ney s f ees and cost s r esul t i ng f r om Bui s, Tr an s andNguyen s obt r usi ve behavi or l eadi ng t o t he pr i or mot i on t ocompel .

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ef f or t s t o voi d t he f r audul ent t r ansf er s. He quest i oned Mr s.

Pham s need f or an i nt er pr et er , consi der i ng t hat she had l i ved i n

t he U. S. f or 30 year s, at t ended hi gh school and col l ege her e, and

had never r equest ed an i nt er pr et er at any of t he 341( a)

meet i ngs. The Trust ee cont ended t hat Nguyen, as part of a del ay

t act i c, had r epeat edl y i nt er f er ed i n Mr s. Pham s deposi t i on,

cont r adi ct i ng t he i nt er pr et er and cor r ect i ng hi s i nt er pr et at i on

of cer t ai n quest i ons and answer s. Besi des t he r emai ni ng 55

mi nut es, t he Tr ust ee ar gued he was ent i t l ed t o an addi t i onal t wo

hour s of deposi t i on t i me wi t h Mr s. Pham due to Nguyen s

i nt er f er ence.6

As f or Mr . Pham, t he Trust ee cont ended t hat other t han t he

doct or s not e, whi ch he ar gued was i nsuf f i ci ent t o excuse Mr .

Pham s nonappear ance, Nguyen provi ded no r eason why Mr . Pham coul d

not appear f or deposi t i on or pr oduce t he subpoenaed document s.

The Tr ust ee ar gued t hat i f Mr . Pham want ed r el i ef f r om t he

subpoena, he had t o move t o quash i t . Absent such r el i ef , ar gued

t he Tr ust ee, he was ent i t l ed t o depose Mr . Pham f or seven hour s

per Ci vi l Rul e 30. 7

I n hi s r equest f or sanct i ons, t he Tr ust ee cont ended

6 I n r evi ewi ng t he deposi t i on t r anscr i pt , whi ch t he Tr ust eef ai l ed t o pr oduce unt i l hi s r epl y, we count ed an i nsi gni f i cantnumber of t i mes wher e Nguyen t r i ed t o cl ar i f y or cor r ect aquest i on/ answer , mai nl y because no equi val ent wor d exi st ed i nVi etnamese f or t he Engl i sh word McDow was usi ng or t he i nt erpr eterhad used t er mi nol ogy di f f er ent f r om McDow s. Nguyen s al l egedi nt er f er ence does not appear t o have consi st ed of mor e t han af ew mi nut es t ot al .

7 The Trust ee cont ended t hat Debt ors had al so r ef used t opr oduce document s pur suant t o t he subpoena duces t ecum, i ncl udi ngr eadi l y- avai l abl e bank st at ement s and t ax r et ur ns. Appel l ant scont ended t hat Mr s. Pham had not hi ng l ef t i n her cust ody andpossessi on t hat she had not al r eady pr oduced at 341( a) meet i ngsand/ or at her deposi t i on.

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Appel l ant s bad f ai t h conduct had cost t he est at e appr oxi mat el y

$12, 000. I n par t i cul ar , t he Tr ust ee cont ended t hat Nguyen had

r ef used t o meet and conf er and t o pr ovi de i nf or mat i on f or t he

j oi nt di scover y st i pul at i on as r equi r ed by LBR 7026- 1( c) ( 3) . The

Tr ust ee ar gued t hat LBR 1001- 1( f ) , 7026- 1( c) ( 4) and 9011- 3 al l

pr ovi ded f or i mposi ng sanct i ons on counsel or a par t y f or

f ai l i ng t o compl y wi t h t he l ocal r ul es, t o cooper at e i n di scover y

pr ocedur es or t o pr ovi de i nf or mat i on necessar y t o pr epar e t he

j oi nt di scover y st i pul at i on.

2. Appellants opposition

Appel l ant s opposed t he Mot i on t o Compel , count er i ng t hat i twas t he Tr ust ee s counsel who f ai l ed t o show good f ai t h ef f or t s t o

r esol ve any di scovery di sput es. Nguyen cont ended t hat on March 19

he bel i eved t he Tr ust ee s counsel was no l onger i nt er est ed i n

t aki ng Mr . Pham s deposi t i on because: ( 1) he had expl ai ned t o

counsel t hat Mr . Pham was bed- r i dden due t o a r ecent st r oke and

gave McDow a copy of t he doct or s not e; ( 2) dur i ng t he mul t i pl e

341( a) meet i ngs Mr . Pham r ecal l ed l i t t l e or had no knowl edge of

t he f act s at i ssue i n t he f r audul ent t r ansf er pr oceedi ng; and ( 3)

McDow f ai l ed t o say anyt hi ng on March 17 about r eschedul i ng Mr .

Pham s deposi t i on t o March 19 when she knowi ngl y schedul ed Mr s.

Phamf or t he same date. Fur t her , counsel had not cont act ed Nguyen

about Mr . Pham s deposi t i on unt i l Mar ch 25, af t er t he di scover y

deadl i ne; t he deposi t i on was never r e- not i ced.

Appel l ant s not ed t hat t he Tr ust ee s movi ng paper s f ai l ed t o

pr ovi de any evi dence showi ng Nguyen s al l eged i nt er f er ence wi t h

Mr s. Pham s deposi t i on, namel y, any excer pt s of t he t r anscr i pt or

any st at ement s i n counsel s decl ar at i ons. Appel l ant s ref ut ed t he

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Tr ust ee s accusat i on t hat Mr s. Pham was f aki ng her need f or an

i nt er pr et er .

Appel l ant s ar gued t hat sanct i ons wer e not appr opr i at e because

a ser i es of mi st akes were made by the Trust ee s counsel ; t he March

17 and 19 deposi t i ons were carel essl y managed and counsel appear ed

t o be ei t her di sorgani zed and r eckl ess or engagi ng i n

gamesmanshi p. Appel l ant s argued t hat Debt ors were t he ones

ent i t l ed t o sanct i ons agai nst t he Tr ust ee and hi s counsel and

r equest ed $8, 450 f or expenses i ncur r ed t o oppose t he Mot i on t o

Compel .

3. The Trustees reply

I n r epl y, t he Trust ee argued t hat Nguyen had not compl i ed

wi t h LBR 7026- 1 as cont ended; he had not met and conf er r ed wi t h

counsel t o r esol ve any di scover y di sput es. The Tr ust ee di sput ed

any cont ent i on t hat Mr . Pham s deposi t i on was t aken of f cal endar

based on t he doct or s not e, whi ch t he Tr ust ee mai nt ai ned pr ovi ded

no excuse f or hi s nonat t endance. The Tr ust ee f ur t her ar gued t hat

Debt ors had not compl i ed wi t h t he subpoena duces t ecum as t hey

cont ended; t hey had never pr ovi ded t he request ed bank st atement s

and t ax r etur ns, whi ch may or may not have been i n t hei r cust ody

or possessi on but cer t ai nl y wer e under t hei r cont r ol .

I n concl usi on, t he Tr ust ee ar gued he was ent i t l ed t o

r easonabl e expenses i ncur r ed i n br i ngi ng t he Mot i on t o Compel

under Ci vi l Rul e 37( a) ( 5) ( A) . The Tr ust ee st at ed t hat he woul d

f i l e a decl ar at i on cont empor aneousl y wi t h t he l odgi ng of t he

pr oposed order showi ng hi s expenses t o ensure t hat al l were

i ncl uded.

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C. The bankruptcy courts ruling on the Motion to Compel

At t he hear i ng on t he Mot i on t o Compel , t he bankr upt cy cour t

st at ed sever al t i mes t hat : Debt or s wer e t he par t i es bei ng

sued[ ; ] t hey had an obl i gat i on t o di scl ose ever yt hi ng t o t he

Tr ust ee and wer e r equi r ed t o answer t he Tr ust ee s quest i ons no

mat t er how l ong i t t ook; and t hey r i sked havi ng a j udgment ent ered

agai nst t hem i f t hey di d not cooper ate and gi ve t he Tr ust ee what

he needed. See Hr g Tr . ( J une 3, 2014) at 8: 8- 10; 8: 14- 15; 11: 13-

15; 25: 13- 16; 28: 15- 19; 38: 15- 20; 39: 9- 13. Af t er order i ng Debt or s

t o appear f or deposi t i ons and to pr oduce t he request ed document s,

t he bankrupt cy cour t r ul ed on t he sanct i ons r equest . Thef ol l owi ng i s t he ext ent of i t s or al r ul i ng:

THE COURT: I m awar di ng at t or ney s f ees because weshoul dn t be her e. . . . You needed t o do what t he r ul esai d you had t o do bef ore we had t o come here t o cour t .

. . . .

THE COURT: You di dn t do what you wer e supposed t o do andt hat as a l awyer i s not f or gi vabl e at t hi s poi nt . Youshoul d know bet t er . You are have a st ate Bar car d. Youare supposed t o do what you r e supposed t o do as a l awyerand you were supposed t o do many t hi ngs t hat you di dn t dobef ore comi ng here t oday.

So I m goi ng t o go ahead and gr ant on #14. 00 [ t he Mot i ont o Compel ] [ ] at t endance, t he pr oduct i on of document s andt he awar di ng of at t or ney s f ees.

I d. at 42: 16- 17; 43: 3- 5; 43: 11- 19.

The Tr ust ee submi t t ed a proposed or der f or t he Mot i on t o

Compel , whi ch st ated t hat Appel l ant s were ordered t o pay t he

Tr ust ee t he sum of $__ . . . as a sanct i on f or abusi ve conduct i n

t he cour se of di scover y pur suant t o Local Bankrupt cy Rul es 1001-

1( f ) , 7026- 1( c) , and 9011- 3[ . ] I n suppor t , Del aney submi t t ed a

decl ar at i on set t i ng f or t h t he t ot al amount of t he Tr ust ee s f ees

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associ ated wi t h pr epar i ng and pr osecut i ng t he Mot i on t o Compel

$17, 515. Del aney expr essl y wai ved any r i ght t o cost s.

Appel l ant s obj ect ed t o t he pr oposed or der , ar gui ng t hat t he

Tr ust ee s i ncr eased at t or ney s f ee r equest of $17, 515 was not

pr esent ed unt i l after t he hear i ng, whi ch deni ed t hei r due pr ocess

r i ght s. Appel l ant s f ur t her cont ended t hat awar di ng t he sanct i on

of at t or ney s f ees was cont r ar y t o t he Panel s r ecent deci si on i n

St i pp v. CML- NV One, LLC ( I n r e Pl i se) , 506 B. R. 870 ( 9t h Ci r . BAP

2014) , whi ch Appel l ant s cont ended hel d t hat a cour t may not order

a nonpar t y t o pay sanct i ons f or di scover y vi ol at i ons under Ci vi l

Rul e 37.I n r epl y, t he Tr ust ee di sput ed any vi ol at i on of Appel l ant s

due pr ocess r i ght s; he had st at ed i n the Mot i on t o Compel t hat he

woul d seek payment of al l f ees and cost s r el at i ng t o pr epar i ng and

pr osecut i ng t he Mot i on t o Compel , i ncl udi ng any f ut ur e f ees and

expenses. Fur t her , ar gued t he Tr ust ee, Appel l ant s wer e gi ven

ampl e oppor t uni t y at t he hear i ng t o pr esent t hei r ar gument s on t he

mat t er . The Tr ust ee al so di sput ed t he appl i cabi l i t y of Pl i se,

not i ng t hat t he bankr upt cy cour t awarded sanct i ons under LBR 1001-

1( f ) , 7026- 1( c) ( 4) and 9011- 3, not Ci vi l Rul e 37.

Maki ng mi nor changes t o the pr oposed order , t he bankr upt cy

cour t ent ered i t s or der gr ant i ng t he Mot i on t o Compel ( Compel

Or der ) . Appel l ant s wer e or der ed t o pay t he Tr ust ee $17, 515 as a

sanct i on f or abusi ve conduct i n t he cour se of di scover y pur suant

t o Local Bankrupt cy Rul es 1001- 1( f ) , 7026- 1( c) , and 9011- 3[ . ]

II. JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on under 28 U. S. C. 1334

and 157( b) ( 2) ( A) . As t o t he por t i on of t he Compel Or der awar di ng

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sanct i ons, t he or der i s suf f i ci ent l y f i nal f or i mmedi at e appeal .

I n r e Pl i se, 506 B. R. at 876 ( ci t i ng Pennwal t Cor p. v. Dur and-

Wayl and, I nc. , 708 F. 2d 492, 494 n. 3 ( 9t h Ci r . 1983) ( or der s

i mposi ng sanct i ons on nonpar t i es f or f ai l ur e t o compl y wi t h

di scover y ar e consi der ed f i nal f or pur poses of appeal ) ) . Out of

an abundance of caut i on, however , we gr ant ed Appel l ant s l eave t o

appeal t he Compel Or der . Ther ef or e, we have j ur i sdi ct i on under 28

U. S. C. 158.

III. ISSUE

Di d t he bankrupt cy cour t abuse i t s di scr et i on when i t i mposed

t he sanct i on of at t or ney s f ees agai nst Appel l ant s f or di scover yabuse under LBR 1001- 1( f ) , 7026- 1( c) and 9011- 3?

IV. STANDARDS OF REVIEW

The i mposi t i on of di scover y sanct i ons i s r evi ewed f or abuse

of di scret i on. I n r e Pl i se, 506 B. R. at 876 ( ci t i ng Freeman v.

San Di ego Ass n of Real t or s, 322 F. 3d 1133, 1156 ( 9t h Ci r . 2003) ) .

A bankrupt cy cour t abuses i t s di scr et i on i f i t appl i es t he wr ong

l egal st andar d, mi sappl i es t he cor r ect l egal st andar d, or i f i t s

f actual f i ndi ngs ar e cl ear l y er r oneous. Tr af f i cSchool . com, I nc.

v. Edr i ver I nc. , 653 F. 3d 820, 832 ( 9t h Ci r . 2011) .

The val i di t y of a l ocal cour t r ul e i s a quest i on of l aw

r evi ewed de novo. St ei nacher v. Roj as ( I n r e St ei nacher ) , 283

B. R. 768, 771- 72 ( 9t h Ci r . BAP 2002) ( ci t i ng J ones v. Hi l l ( I n r e

Hi l l ) , 811 F. 2d 484, 485- 86 ( 9t h Ci r . 1987) ) .

V. DISCUSSION

The bankruptcy court abused its discretion in sanctioningAppellants under LBR 1001-1(f), 7026-1(c) and 9011-3.

Dur i ng the hear i ng on the Mot i on t o Compel , t he bankr upt cy

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cour t st at ed r epeat edl y t hat Debt or s are debt or s i n bankr upt cy and

subj ect t o dut i es t o di scl ose cer t ai n i nf or mat i on t o t hei r

appoi nt ed t r ust ee. See 521. We do not quest i on t hi s i mpor t ant

st at ut or y obl i gat i on i mposed on debt or s. However , t he cour t al so

st at ed r epeat edl y t hat Debt or s wer e bei ng sued. I n t hi s

adver sary pr oceedi ng, t he Tr ust ee di d not sue t he Debt or s; t hey

wer e nonpar t y wi t nesses. Al so, t he Tr ust ee was not oper at i ng

under Rul e 2004 t o obt ai n t hei r exami nat i on or t he pr oduct i on of

document s. I n t hese ci r cumst ances, Debt or s wer e ent i t l ed t o t he

pr ot ect i ons provi ded t hem as nonpar t y wi t nesses under t he Feder al

Rul es of Ci vi l Pr ocedur e and t he Bankrupt cy Rul es, par t i cul ar l yCi vi l Rul e 45 and Rul e 9016 ( i ncor por at i ng Ci vi l Rul e 45) , whi ch

were ci t ed i n t he i ssued subpeonas.

Fur t her , we f ai l t o see how Nguyen, an at t or ney f or a

nonpart y, woul d be subj ect t o compl yi ng wi t h a meet i ng of

counsel , a j oi nt di scover y st i pul at i on or any ot her aspect of

di scover y by t he Tr ust ee under Ci vi l Rul e 26 or LBR 7026- 1( c) .

Appel l ant s argue that t he bankrupt cy cour t er r ed by f ai l i ng

t o appl y t he pr oper pr ocedur e af f orded nonpart i es when i mposi ng

sanct i ons f or noncompl i ance wi t h a subpoena under Ci vi l Rul e 45.

Speci f i cal l y, Appel l ant s ar gue t hat t he pr ocedur e f ol l owed her e

conf l i ct s wi t h our hol di ng i n Pl i se. Ther e, a credi t or of t he

debt or served a nonpar t y wi t ness wi t h a subpoena compel l i ng hi m t o

appear f or a Rul e 2004 exami nat i on and t o pr oduce document s. I n

r e Pl i se, 506 B. R. at 872- 73. The nonpar t y wi t ness t i mel y served

hi s wr i t t en obj ect i ons t o t he subpoena duces t ecum on t he cr edi t or

and l at er moved f or a pr ot ect i ve or der . I d. at 873- 74. I n

r esponse, t he cr edi t or f i l ed a count er mot i on t o compel and

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r equest ed at t or ney s f ees. I d. at 874- 75. The bankrupt cy cour t

deni ed t he nonpar t y s mot i on f or pr ot ect i ve or der , gr ant ed t he

cr edi t or s count er mot i on to compel and awar ded the credi t or

$10, 000 f or i t s at t or ney s f ees i ncur r ed i n br i ngi ng t he

count er mot i on t o compel pur suant t o Ci vi l Rul e 37( a) ( 5) . I d. at

876.

We r ever sed, hol di ng t hat t he sanct i on of at t or ney s f ees

coul d not be i mposed on a nonpar t y wi t ness f or noncompl i ance wi t h

a subpoena duces t ecum under Ci vi l Rul e 37 ( i ncor por at ed by Rul e

7037) ; r at her , Ci vi l Rul e 45 i s t he sol e basi s f or enf or ci ng a

nonpar t y s noncompl i ance wi t h a subpoena duces t ecum. I d. at 877-79. See al so Ci vi l Rul e 34( c) , i ncor por at ed by Rul e 7034, whi ch

pr ovi des t hat mot i ons t o compel a nonpar t y t o pr oduce document s

ar e gover ned by Ci vi l Rul e 45. Under Ci vi l Rul e 45, t he nonpar t y

must f i r st be subj ect t o an or der compel l i ng di scover y and t hen

f ai l t o compl y wi t h t hat or der bef or e t he cour t can i nvoke i t s

cont empt power s and i mpose a sanct i on of at t or ney s f ees. I d.

See al so Pennwal t Corp. , 708 F. 2d at 494.

Our hol di ng i n Pl i se i s nar r ower t han Appel l ant s cont end.

Fi r st , t o r ecei ve t he pr ocedur al pr ot ect i ons of Ci vi l Rul e 45, t he

nonpar t y wi t ness must t i mel y obj ect t o a subpoena duces t ecum,

ei t her by ser vi ng wr i t t en obj ect i ons t o t he r equest i ng par t y or by

a mot i on t o quash. I n r e Pl i se, 506 B. R. at 879. See al so

Pennwal t Corp. , 708 F. 2d at 494 n. 5 ( once t he subpoenaed part y

obj ect s, t he pr ot ect i ons of Ci vi l Rul e 45( d) come i nt o pl ay and

t he par t y seeki ng di scover y must obt ai n a cour t or der di r ect i ng

compl i ance) . Debt or s di d not serve any wr i t t en obj ect i ons on t he

Tr ust ee r egar di ng product i on of t he r equest ed document s or f i l e a

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mot i on t o quash.

Next , f or a subpoenaed nonpar t y s f ai l ur e t o at t end a

deposi t i on, Ci vi l Rul e 37( a) ( 5) aut hor i zes an awar d of expenses,

i ncl udi ng at t or ney s f ees, i ncur r ed f or a mot i on t o compel t he

nonpar t y s at t endance. Pennwal t Cor p. , 708 F. 2d at 494 n. 4 ( Ci vi l

Rul e 37 sanct i ons appl y t o mot i ons t o compel nonpar t i es t o at t end

deposi t i ons) ; Ci vi l Rul e 37( a) ( 5) ( A) ( expr essl y r ef er enci ng a

par t y or deponent and st at i ng t hat t he sanct i on of at t or ney s

f ees may be i mposed on t he par t y, t he deponent , t he at t orney

advi si ng t he par t y or deponent whose conduct necess i t ated t he

mot i on t o compel , or bot h) . See al so Ci vi l Rul e 30( d) ( 2) ,i ncorporated by Rul e 7030, whi ch pr ovi des t hat t he cour t may

i mpose a sanct i on of r easonabl e at t orney s f ees i ncur r ed by any

par t y on a per son who i mpedes, del ays or f r ust r at es t he f ai r

exami nat i on of a deponent ; and Ci vi l Rul e 30( d) ( 3) ( C) , whi ch

pr ovi des t hat any such sanct i on i s gover ned by Ci vi l Rul e

37( a) ( 5) . I n t hi s case, much of t he conf l i ct st emmed f r om

secur i ng Debt or s appear ance f or deposi t i ons and Nguyen s al l eged

i nt er f er ence wi t h Mr s. Pham s deposi t i on.

Debt ors and Nguyen coul d have been sanct i oned f or at t orney s

f ees under Ci vi l Rul e 37( a) ( 5) f or any f ai l ur e t o compl y wi t h t he

subpoenas. The bankr upt cy cour t , however , di d not i mpose

sanct i ons under Ci vi l Rul e 37( a) ( 5) , but r at her r el i ed on t hr ee

l ocal r ul es t o i mpose them. We concl ude t hat none of t hese l ocal

r ul es suppor t t he sanct i on of at t or ney s f ees i n t hi s cont ext . We

r evi ew t hem i n r ever se or der .

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A. The bankruptcy court could not rely on LBR 9011-3.

LBR 9011- 3( a) Vi ol at i on of Rul es8 pr ovi des t hat vi ol at i on

of t he Rul es or t he LBR may subj ect t he of f endi ng part y or counsel

t o penal t i es, i ncl udi ng t he monet ar y sanct i on of at t or ney s f ees

and cost s payabl e t o opposi ng counsel . I n ot her wor ds, t hi s rul e

al l ows t he bankrupt cy cour t t o i mpose sanct i ons f or any i nf ract i on

of a l ocal or f eder al bankrupt cy r ul e. However , Rul e 9011

( i ncor por at i ng Ci vi l Rul e 11) , expr essl y pr ohi bi t s t he use of t hi s

r ul e t o sanct i on vi ol at i ons r espect i ng di scl osur e and di scover y

r equest s, r esponses, obj ect i ons, and mot i ons t hat ar e subj ect t o

t he pr ovi si ons of Rul es 7026 t hr ough 7037. See Rul e 9011( d) .I n adopt i ng t he Code, Congr ess del egated t o t he Supr eme Cour t

t he power t o make and enf orce general bankr upt cy rul es. 28 U. S. C.

2071. Pur suant t o t hi s aut hor i t y, t he Supr eme Cour t pr omul gat ed

Rul e 9029, 9 whi ch aut hor i zes di st r i ct cour t s, or bankr upt cy cour t s

8 Violation of Rules. The vi ol at i on of , or f ai l ure t o

conf or m t o, t he [ Fed. R. Bankr. P] or t hese r ul es may subj ect t heof f endi ng par t y or counsel t o penal t i es, i ncl udi ng monet ar ysanct i ons, t he i mposi t i on of cost s and at t or neys f ees payabl e t oopposi ng counsel , and/ or di smi ssal of t he case or pr oceedi ng.

9 Rul e 9029( a) provi des, i n r el evant par t :

( 1) Each di st r i ct cour t acti ng by a maj or i t y of i t s di st r i ctj udges may make and amend r ul es gover ni ng pract i ce andpr ocedur e i n al l cases and pr oceedi ngs wi t hi n t he di st r i ctcour t s bankr upt cy j ur i sdi ct i on whi ch ar e consi st ent wi t h but not dupl i cat i ve of Act s of Congr ess and t hese rul es andwhi ch do not pr ohi bi t or l i mi t t he use of t he Of f i ci al For ms.Rul e 83 F. R. Ci v. P. gover ns t he pr ocedur e f or maki ng l ocalr ul es. A di st r i ct cour t may aut hor i ze t he bankrupt cy j udgesof t he di st r i ct, subj ect t o any l i mi t at i on or condi t i on i tmay pr escr i be and t he requi r ement s of [ Rul e] 83 F. R. Ci v. P. ,t o make and amend rul es of pr act i ce and pr ocedur e whi ch ar econsi st ent wi t h but not dupl i cat i ve of Act s of Congr essand t hese r ul es and whi ch do not pr ohi bi t or l i mi t t he use oft he Of f i ci al For ms. Local r ul es shal l conf or m t o any uni f or mnumber i ng syst em pr escr i bed by t he J udi ci al Conf er ence of t heUni t ed St at es.

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wi t h aut hor i t y f r om t he di st r i ct cour t s, t o adopt t hei r own l ocal

bankrupt cy r ul es. I n r e St ei nacher , 283 B. R. at 772. Under Rul e

9029, however , t hi s power i s st r i ct l y l i mi t ed. Si gma Mi cr o Cor p.

v. Heal t hcent r al . com ( I n r e Heal t hcent r al . com) , 504 F. 3d 775, 784

( 9t h Ci r . 2007) ( ci t i ng 10 COLLI ER ON BANKRUPTCY 9029. 01[ 1] ( Al an N.

Resni ck & Henr y J . Sommer , eds. , 15t h ed. r ev. 2006) ) . A l ocal

r ul e of bankr upt cy pr ocedur e cannot be appl i ed i n a manner t hat

conf l i ct s wi t h t he f eder al r ul es; i t must be consi st ent wi t h t he

Code, t he Rul es and t he Ci vi l Rul es. Anwar v. J ohnson, 720 F. 3d

1183, 1189 ( 9t h Ci r . 2013) ; I n r e St ei nacher , 283 B. R. at 772.

Local bankrupt cy r ul es may not enl arge, abr i dge, or modi f y anysubst ant i ve r i ght . Anwar , 720 F. 3d at 1189 ( ci t i ng Sunahar a v.

Bur char d ( I n r e Sunahar a) , 326 B. R. 768, 782 ( 9t h Ci r . BAP 2005) ) .

Any l ocal r ul e t hat i s i nconsi st ent wi t h t he Act s of Congr ess and

t he Rul es must be hel d i nval i d. I n r e Heal t hcent r al . com, 504 F. 3d

at 784; I n r e Sunahar a, 326 B. R. at 783.

To t he ext ent LBR 9011- 3 conf l i ct s wi t h Rul e 9011 i n

aut hor i z i ng sancti ons f or di scover y vi ol at i ons, i t i s i nval i d. I f

LBR 9011- 3 i s not i nt ended t o be used t o suppor t a sanct i on f or

at t or ney s f ees r espect i ng di scover y abuse, cl ear l y t he bankrupt cy

cour t abused i t s di scret i on i n appl yi ng i t i n t hi s cont ext t o

Appel l ant s. Ei t her way, LBR 9011- 3 cannot suppor t t he sanct i on.

B. The bankruptcy court could not rely on LBR 7026-1(c).

LBR 7026- 1( c) , speci f i cal l y ( c) ( 4) 10 Cooper at i on of Counsel ;

10 Cooper at i on of Counsel ; Sanct i ons. The f ai l ur e of anycounsel ei t her t o cooper at e i n t hi s pr ocedur e, t o at t end t hemeet i ng of counsel , or t o pr ovi de t he movi ng par t y t he i nf or mat i onnecessar y t o pr epar e t he st i pul at i on r equi r ed by thi s r ul e wi t hi n7 days of t he meet i ng of counsel wi l l r esul t i n t he i mposi t i on ofsanct i ons, i ncl udi ng t he sanct i ons aut hor i zed by [ Rul e] 7037 andLBR 9011- 3.

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Sanct i ons al l ows t he bankrupt cy cour t t o i mpose sanct i ons on

counsel who f ai l t o cooper at e i n di scl osur e or di scover y, t o

at t end t he meet i ng of counsel or t o pr ovi de the movi ng par t y t he

i nf or mat i on necessary t o pr epar e t he st i pul at i on r equi r ed by LBR

7026- 1. For awardi ng t he sanct i on of at t or ney s f ees, LBR 7026-

1( c) ( 4) r el i es, i n par t , on t he sanct i on aut hor i t y aut hor i zed by

LBR 9011- 3, whi ch we have determi ned conf l i ct s wi t h Rul e 9001' s

expr ess pr ohi bi t i on of sanct i ons r el at i ng t o di scover y abuse.

As not ed above, we f ai l t o see how t he requi r ement s of LBR

7026- 1 appl y t o counsel f or a nonpar t y. However , even i f t hey do,

t wo pr obl ems exi st . Fi r st , t he at t or ney s f ees wer e i mposedj oi nt l y and several l y on Nguyen and Debt or s; LBR 7026- 1( c) ( 4)

expr essl y appl i es onl y t o counsel . Second, and mor e i mpor t ant l y,

no such sanct i on i s aut hor i zed by Rul e 7026 ( i ncor por at i ng Ci vi l

Rul e 26) . Ci vi l Rul e 26 t he r ul e gover ni ng di scover y gener al l y

expr essl y pr ovi des t hat Ci vi l Rul e 37( a) ( 5) gover ns t he awar d of

expenses i n connect i on wi t h r equest s f or pr ot ect i ve or der s and/ or

successf ul opposi t i ons t her et o. See Ci vi l Rul e 26( c) ( 3) .

Ci vi l Rul e 26 does not pr ovi de f or t he i mposi t i on of

sanct i ons except i n one ci r cumst ance i mpr oper cer t i f i cat i on i n

si gni ng di scl osur e and di scover y request s, r esponses and

obj ect i ons. See Ci vi l Rul e 26( g) ( 3) . I mpr oper cer t i f i cat i on was

not an i ssue here. Thus, because Rul e 7026 does not expr essl y

pr ovi de f or sanct i ons f or di scover y abuse, i n par t i cul ar

at t or ney s f ees wi t h r espect t o a mot i on f or a pr ot ect i ve or der ,

opposi t i on t her eto, or a mot i on t o compel , nei t her can LBR 7026- 1.

To t he ext ent LBR 7026- 1( c) ( 4) i s i nconsi st ent wi t h Rul e 7026, i t

i s i nval i d and cannot suppor t t he sanct i on of at t or ney s f ees.

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C. The bankruptcy court could not rely on LBR 1001-1(f).

LBR 1001- 1( f ) 11 i s a cat ch al l r ul e pr ovi di ng f or t he

sanct i on of at t or ney s f ees f or t he f ai l ur e of counsel or of a

par t y t o compl y wi t h t he LBRs, t he Ci vi l Rul es or t he Rul es, or

wi t h any or der of t he bankrupt cy cour t . Rul e 1001, t he r ul e f r om

whi ch LBR 1001- 1( f ) i s der i ved, pr ovi des f or t he scope of t he

Rul es and Bankr upt cy For ms and st ates t hat t he Rul es and For ms

govern pr ocedur e i n bankr upt cy cases. Rul e 1001 does not

expr essl y aut hor i ze sanct i ons f or vi ol at i ng ot her f eder al r ul es.

Ther ef or e, LBR 1001- 1( f ) i s i nconsi st ent wi t h Rul e 1001 i n t hat i t

gr ant s t he cour t sanct i on aut hor i t y not pr ovi ded f or i n Rul e 1001.Thus, i t i s i nval i d, and t he bankrupt cy cour t coul d not r el y on

t hi s l ocal r ul e t o sanct i on Appel l ant s.

I n summary, t he bankr upt cy cour t abused i t s di scr et i on when

i t i mposed t he sanct i on of at t or ney s f ees agai nst Appel l ant s f or

al l eged di scover y abuse under LBR 1001- 1( f ) , 7026- 1( c) and 9011- 3.

Al t hough the cour t coul d have sanct i oned Appel l ant s under Rul e

7037, and we can af f i r m on any basi s suppor t ed by t he recor d, t he

i nsuf f i ci ent f i ndi ngs made by t he bankrupt cy cour t pr event us f r om

doi ng so. We ar e par t i cul ar l y concer ned about t he cour t s

err oneous assumpt i ons t hat may have caused i t t o er r i n awardi ng

sanct i ons i n t he f i r st pl ace: t hat Debt or s wer e par t i es t o t he

adver sar y pr oceedi ng; and t hat because t hey are debt ors t hey are

not ent i t l ed t o the pr ot ect i ons af f or ded nonpar t i es i n di scover y

under t he Rul es.

The Mot i on t o Compel was a cont est ed mot i on under Rul e 9014

11 Sanctions for Noncompliance with Rules. The f ai l ure ofcounsel or of a par t y t o compl y wi t h t hese Local Bankrupt cy Rul es,wi t h t he F. R. Ci v. P. or t he [ Fed. R. Bankr . P. ] , or wi t h any or derof t he cour t may be gr ounds f or t he i mposi t i on of sanct i ons.

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and subj ect t o Ci vi l Rul e 52( a) ( i ncor por at ed by Rul e 7052) , whi ch

r equi r es t he bankr upt cy cour t t o f i nd f act s speci f i cal l y and st at e

i t s concl usi ons of l aw separ at el y. Fi r st Yor kshi r e Hol di ngs, I nc.

v. Paci f i ca L 22 ( I n r e Fi r st Yor kshi r e Hol di ngs, I nc. ) , 470 B. R.

864, 870 ( 9t h Ci r . BAP 2012) . The bankrupt cy cour t s f i ndi ngs,

made at t he hear i ng, mer el y st at e t hat Nguyen ( not Debt ors) f ai l ed

t o compl y wi t h di scovery, namel y, LBR 7026- 1. We concl ude t hat

LBR 7026- 1, as promul gated, i mposes obl i gat i ons, such as meet and

conf er and j oi nt di scover y st i pul at i on on par t i es but not on

nonpar t i es. Fur t her , t he Compel Or der pr ovi des no f i ndi ngs of

f act t o suppor t t he cour t s deci si on t o sanct i on Appel l ant s f orabusi ve conduct i n t he cour se of di scover y.

VI. CONCLUSION

Accor di ngl y, because t he bankrupt cy cour t appl i ed i ncor r ect

st andar ds of l aw and f ai l ed t o make t he necessar y f i ndi ngs

r equi r ed under Rul e 7052 f or us t o af f i r m under Rul e 37, we VACATE

and REMAND t he Compel Or der f or f ur t her pr oceedi ngs consi st ent

wi t h t hi s opi ni on. 12

12 Because we ar e vacat i ng and r emandi ng t he Compel Or der , weneed not addr ess Appel l ant s argument t hat t hey were deni ed duepr ocess because t he Tr ust ee f ai l ed t o pr esent hi s f ees evi denceunt i l af t er t he bankrupt cy cour t had al r eady awar ded t hem.

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In re: Tony Pham and Lindsie Kim Pham, 9th Cir. BAP (2015)

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