177 B.R. 932 (E.D.Cal. 1993), CV-F-92-5011, In re Dinubilo

Docket NºCiv. A. No. CV-F-92-5011 OWW.
Citation177 B.R. 932
Party NameIn re Rocco Dante DINUBILO, Debtor.
Case DateMay 10, 1993
CourtUnited States District Courts, 9th Circuit, United States District Courts. 9th Circuit. Eastern District of California

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177 B.R. 932 (E.D.Cal. 1993)

In re Rocco Dante DINUBILO, Debtor.

Civ. A. No. CV-F-92-5011 OWW.

United States District Court, E.D. California.

May 10, 1993

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[Copyrighted Material Omitted]

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Michael Terry Hertz, Lang Richert and Patch, Fresno, CA.

Paul Michael Brown, Torts Branch, Civ. Div., Washington, DC.

Daniel Bensing, U.S. Attorney's Office, Fresno, CA.

MEMORANDUM OPINION AND ORDER RE APPELLANTS' APPEAL FROM UNITED STATES BANKRUPTCY COURT, EASTERN DISTRICT OF CALIFORNIA

WANGER, District Judge.

I

INTRODUCTION

This is an appeal from a Bankruptcy Court's decision resolving a discovery dispute between appellants, Mark St. Angelo 1 in his personal capacity and the Office of the United States Trustee ("OUST"), and appellee, James M. Ford, ("Case Trustee"), the trustee appointed for the estate of debtor, Rocco Dante Dinubilo. The discovery dispute in turn, arose out of OUST's motion to remove the Case Trustee in debtor Dinubilo's Chapter 7 bankruptcy. Appellants appeal the Bankruptcy Court's decision to dismiss OUST's motion to remove the Case Trustee and the imposition of monetary sanctions against OUST and appellant St. Angelo individually.

II

STATEMENT OF FACTS

On July 6, 1990, debtor Dinubilo, filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code. Shortly thereafter, the Case Trustee was appointed trustee of the estate. Debtor's two largest

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creditors, Harvey's Wagon Wheel, Inc. and Harrah's Club ("creditors"), two Nevada gambling entities, asserted that debtor and his wife had transferred real and personal property to their son within three years of the date of debtor's bankruptcy filing. The creditors requested that the Case Trustee seek to avoid and recover the amounts transferred pursuant to the Case Trustee's avoidance powers, 11 U.S.C. §§ 544, 545, 547 and/or 548.

The Case Trustee declined to initiate any adversary proceedings against the debtor or the debtor's transferees for the reasons that he was not an attorney and lacked liquid assets to fund an investigation or to cover the expense of litigation. As a result, the creditors sought formation of a creditors' committee to bring adversary proceedings to avoid the transfers. The Case Trustee did not oppose the creditors' motion and the Bankruptcy Judge authorized the formation of the committee to institute any actions necessary to avoid the transfers.

On February 14, 1991, OUST filed a motion to remove the Case Trustee under 11 U.S.C. § 324(a) 2 for alleged nonperformance of his duties by failure to expeditiously pursue the debtor's improper transfers of real property; failure to investigate the presence of equity in real property; and failure to collect and reduce to money the assets of the estate in a timely fashion. In the same motion, OUST requested that the Case Trustee be removed from all of his cases pursuant to 11 U.S.C. § 324(b). 3

The Case Trustee alleges that Edward Kandler, the Assistant U.S. Trustee who sought his removal, is engaged in a "personal vendetta" against him. 4 The Case Trustee sought to depose Edward Kandler and Gary Dyer, a staff attorney with OUST, in an effort to show that OUST's motion to remove is "unsound and unfounded." St. Angelo notified the Case Trustee that, according to Department of Justice regulations, Kandler and Dyer could not be deposed unless the Case Trustee provided a written description of the subject areas to be covered in the deposition. On February 27, 1991, the Case Trustee telecopied St. Angelo a letter which listed the matters to be covered in the deposition. 5 Upon learning the nature of the information sought by the Case Trustee, St. Angelo notified the Case Trustee that the Department of Justice would not permit Kandler and Dyer to be deposed concerning such matters without a court order.

On March 13, 1991, the Case Trustee moved for an order against Kandler and Dyer, directing them to appear for an examination pursuant to Bankruptcy Rule 2004. 6

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OUST opposed the Case Trustee's motion for a Rule 2004 examination on several grounds. Most notably, OUST argued that a Rule 2004 examination is limited to uncovering information on the existence and whereabouts of a debtor's estate and could not be used to probe the internal operations of the U.S. Trustee's office. OUST also argued that the Case Trustee was required to proceed under Bankruptcy Rule 9014, which makes the Federal Rules of Civil Procedure applicable to contested matters. In the alternative, OUST urged the court to find that the information sought by the Case Trustee was protected by the attorney-client privilege, the work product privilege, and/or the Privacy Act, 5 U.S.C. § 552a.

On March 27, 1991, Bankruptcy Judge Richard T. Ford entered an order, along with findings of fact and conclusions of law, requiring the OUST attorneys to submit to the Rule 2004 examination. The Bankruptcy Court found that Rule 2004(a): (1) permits the Court to order the examination of any entity upon the motion of any party in interest; (2) that the Case Trustee was a party in interest; (3) Kandler and Dyer were "entities" under Rule 9001 and 11 U.S.C. § 101(14). Under Rule 2004(b): (4) the examination may relate to any matter which may affect the administration of the debtor's estate; and (5) "the removal of a trustee is without question a matter which affects the administration of the debtor's estate."

As to OUST's alternative argument that the deposition sought privileged or work product information, the Bankruptcy Court found that all of the matters to be explored did not appear to be covered under the various privileges asserted. The Court stated that "claims of privilege, privilege or work product needed to be made on [sic] question-by-question basis and can only be determined after questions are asked and a response is refused on specific grounds."

OUST appealed to the District Court and moved for a stay of the order pending appeal. The Bankruptcy Court denied the stay and the matter came before Judge Price on the issue of appellants' motion for stay pending appeal. Judge Price denied the stay and reached the merits. He found no basis for the U.S. Trustee or any OUST employees to be exempt from examination under Rule 2004. He affirmed the Bankruptcy Court's order for the examination without the matter being briefed or argued on the merits, on the premise that appellants' discovery concerns were adequately addressed by permitting St. Angelo to state objections during the examination.

On April 29, 1991, the Bankruptcy Court reset the date of the Rule 2004 examination. On May 15, 1991, attorneys Kandler and Dyer, represented by appellant St. Angelo, appeared for the examination conducted by the Case Trustee's counsel. During the examination, St. Angelo made numerous objections on the grounds of "relevance" and "beyond the scope of Rule 2004," claiming that a Rule 2004 examination is for the limited purpose of gathering information on the financial affairs of the debtor.

On July 1, 1991, following the Rule 2004 examination, the Case Trustee brought a motion for the imposition of discovery sanctions under Bankruptcy Rule 7037, which incorporates Fed.R.Civ.P. 37. The Case Trustee sought: 1) dismissal of OUST's motion for removal as a sanction for the failure to comply with the 2004 examination order or alternatively; 2) a further order requiring Kandler and Dyer to answer the questions posed during the 2004 examination which are not protected by any privilege; or 3) disqualification of all OUST/Fresno attorneys and St. Angelo from participating in the motion to remove the Case Trustee; and 4) attorneys' fees and costs.

It is the November 7, 1991, Bankruptcy Court ruling on the Case Trustee's sanctions motion, from which this appeal is taken, 139 B.R. 501. The Court found St. Angelo's objections

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on non-privileged matters unjustified and a failure to comply with the Court's order to submit to the 2004 examination. 7 Based on these findings, the Court sanctioned appellants under Fed.R.Civ.P. 37(b)(2) by dismissing OUST's motion to remove the Case Trustee and imposing monetary sanctions on OUST and appellant St. Angelo, personally. The Court declined to impose a lesser alternative sanction or to issue an order under Fed.R.Civ.P. 37(a)(2) first compelling OUST attorneys to answer the questions posed during the examination. The Court believed such an order would be ineffective, predicting that appellants "would continue to disobey the Court's order."

The Court found that OUST's refusal to answer questions not specifically bearing on the administration of the Dinubilo estate prevented any foundational facts to be established on any matter other than the Dinubilo case; even though, the Bankruptcy Court observed that the Case Trustee's competency in the handling of all of his cases has been placed at issue, making questions about other cases relevant. Dismissal was found to be the only adequate sanction because OUST's posture effectively prevented the Case Trustee from establishing his defense to the motion for removal.

III

STANDARD OF REVIEW

The Supreme Court in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990), held that a unitary abuse of discretion standard is appropriate when reviewing a trial court's decision to impose sanctions under Fed.R.Civ.P. 11, noting the difficulty in distinguishing between legal and factual issues in reviewing the imposition of sanctions. Before the ruling in Cooter & Gell, the Ninth Circuit employed a three-tiered standard to review sanction orders. See, In re Taylor, 884 F.2d 478, 480 (9th Cir.1989) (a court order imposing sanctions under Fed.R.Civ.P. 11, or its equivalent in the bankruptcy context, Bankruptcy Rule 9011 is reviewed as follows: findings of fact upon which the award of sanctions is based is reviewed for clear error, the legal conclusion that...

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51 practice notes
  • 458 B.R. 560 (Bkrtcy.D.Nev. 2011), BK-S-09-31131-BAM, In re Hotels Nevada, LLC
    • United States
    • Federal Cases United States Bankruptcy Courts Ninth Circuit
    • September 14, 2011
    ...in a deposition under Rule 7026 because the examination was to be taken in connection with a pending matter. See, e.g., In re Dinubilo, 177 B.R. 932, 941-43 (E.D.Cal.1993); In re Blinder, Robinson & Co., 127 B.R. 267, 274-75 (D.Colo.1991); In re Recoton Corp., 307 B.R. 751, 755 (Bankr.S......
  • In re Hotels Nevada, LLC, 091411 NVBC, BK-S-09-31131-BAM
    • United States
    • Federal Cases United States Bankruptcy Courts Ninth Circuit
    • September 14, 2011
    ...in a deposition under Rule 7026 because the examination was to be taken in connection with a pending matter. See, e.g., In re Dinubilo , 177 B.R. 932, 941-43 (E.D. Cal. 1993); In re Blinder, Robinson & Co ., 127 B.R. 267, 274-75 (D. Colo. 1991); In re Recoton Corp ., 307 B.R. 751, 755 (......
  • 209 B.R. 678 (Bkrtcy.D.Md. 1997), 96-504, In re Symington
    • United States
    • Federal Cases United States Bankruptcy Courts Fourth Circuit
    • June 10, 1997
    ...safeguards available under the Federal Rules of Civil Procedure made applicable to discovery under Rule 9014." In re Dinubilo, 177 B.R. 932, 939 (E.D.Cal.1993). The leading case for this proposition appears to be In the Matter of duPont Walston Inc., 4 Bankr.Ct.Dec. 61 (Bankr.S.D.N.Y.1......
  • 392 B.R. 315 (Bkrtcy.E.D.Tenn. 2008), 07-11374, In re Russell
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • June 2, 2008
    ...who requested the Rule 2004 examination, but the debtor can raise any objections to the examination by filing a motion. In re Dinubilo, 177 B.R. 932 (E.D.Cal.1993); In re Sutera, 141 B.R. 539 (Bankr.D.Conn.1992). This procedure recognizes the debtor's legal duty to testify to facts relevant......
  • Request a trial to view additional results
50 cases
  • 458 B.R. 560 (Bkrtcy.D.Nev. 2011), BK-S-09-31131-BAM, In re Hotels Nevada, LLC
    • United States
    • Federal Cases United States Bankruptcy Courts Ninth Circuit
    • September 14, 2011
    ...in a deposition under Rule 7026 because the examination was to be taken in connection with a pending matter. See, e.g., In re Dinubilo, 177 B.R. 932, 941-43 (E.D.Cal.1993); In re Blinder, Robinson & Co., 127 B.R. 267, 274-75 (D.Colo.1991); In re Recoton Corp., 307 B.R. 751, 755 (Bankr.S......
  • In re Hotels Nevada, LLC, 091411 NVBC, BK-S-09-31131-BAM
    • United States
    • Federal Cases United States Bankruptcy Courts Ninth Circuit
    • September 14, 2011
    ...in a deposition under Rule 7026 because the examination was to be taken in connection with a pending matter. See, e.g., In re Dinubilo , 177 B.R. 932, 941-43 (E.D. Cal. 1993); In re Blinder, Robinson & Co ., 127 B.R. 267, 274-75 (D. Colo. 1991); In re Recoton Corp ., 307 B.R. 751, 755 (......
  • 209 B.R. 678 (Bkrtcy.D.Md. 1997), 96-504, In re Symington
    • United States
    • Federal Cases United States Bankruptcy Courts Fourth Circuit
    • June 10, 1997
    ...safeguards available under the Federal Rules of Civil Procedure made applicable to discovery under Rule 9014." In re Dinubilo, 177 B.R. 932, 939 (E.D.Cal.1993). The leading case for this proposition appears to be In the Matter of duPont Walston Inc., 4 Bankr.Ct.Dec. 61 (Bankr.S.D.N.Y.1......
  • 392 B.R. 315 (Bkrtcy.E.D.Tenn. 2008), 07-11374, In re Russell
    • United States
    • Federal Cases United States Bankruptcy Courts Sixth Circuit
    • June 2, 2008
    ...who requested the Rule 2004 examination, but the debtor can raise any objections to the examination by filing a motion. In re Dinubilo, 177 B.R. 932 (E.D.Cal.1993); In re Sutera, 141 B.R. 539 (Bankr.D.Conn.1992). This procedure recognizes the debtor's legal duty to testify to facts relevant......
  • Request a trial to view additional results
1 firm's commentaries
  • What are the Scope and Limitations of a Rule 2004 Examination?
    • United States
    • LexBlog United States
    • July 24, 2012
    ...are limitations on the right to object to immaterial or improper questions. Washington Mutual, 408 B.R. at 50, citing In re Dinubilo, 177 B.R. 932, 940 (Bankr. E.D. Cal. 1993). When a court is faced with a motion for 2004 examination and there is a pending adversary proceeding, the court mu......

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