Fox v. De Long

• Decision Date: 07 January 2016
• Docket Number: No. 2:14-cv-02947-KJM,2:14-cv-02947-KJM
• Parties: ANDREW AND MARINA FOX, Plaintiffs-Appellants, v. ROBERT MICHAEL DE LONG, Defendant-Appellee.
• Court: U.S. District Court — Eastern District of California

ANDREW AND MARINA FOX, Plaintiffs-Appellants, v. ROBERT MICHAEL DE LONG, Defendant-Appellee.

No. 2:14-cv-02947-KJM

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

January 7, 2016

ORDER

Andrew and Marina Fox appeal the bankruptcy court's judgment for Robert De Long. The Foxes hired De Long's company, Cascadian, to do construction and landscaping work on their home in Sacramento, California. Before the work was completed, and with $189,400 paid to him, De Long filed for bankruptcy. In an adversary proceeding, the Foxes alleged De Long accepted their money under false pretenses, never intended to finish the work, and intentionally caused them harm. Following a bench trial, the bankruptcy judge found for De Long, and the debt was dischargeable. The Foxes appealed.

The court heard oral argument on this matter on August 7, 2015, at which Daniel Baxter and George Guthrie appeared for the Foxes and Jeffrey Kravitz appeared for De Long. After reviewing the parties' briefing and hearing oral argument, the court affirms in part and reverses in part.

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I. BACKGROUND

Andrew and Marina Fox hired Cascadian Landscape, owned by Robert Michael De Long, to do landscape and construction work on their home in Sacramento. Appellants' Excerpts of Record (ER) 342.¹ The original contract was signed in July 2010 for $246,000. Id. It established a payment schedule with fixed sums due at 30, 50, 75, and 100 percent completion, but did not specify a completion date. ER 352. In July 2011, the Foxes made an unscheduled $20,000 payment, and the parties amended the contract to provide for additional landscaping and an August 2011 completion date. ER 357. In September 2011, with work still incomplete, the Foxes agreed to make another unscheduled payment of $15,000, contingent upon completion by October 15, 2011. ER 360. Cascadian never completed the work, and the Foxes hired another contractor, Jeremy Gyori, to finish the job. ER 234-41.

In March 2012, Robert De Long filed a voluntary Chapter 7 bankruptcy petition. Pet., No. 12-26226 (E.D. Cal. filed Mar. 30, 2012), ECF No. 1.² Cascadian filed a similar petition in May 2012. Pet., No. 12-29906 (E.D. Cal. filed May 23, 2012), ECF No. 1. Andrew and Marina Fox were listed as creditors only on Cascadian's petition. Id. In July 2012, the Foxes filed an adversary proceeding against De Long, alleging Cascadian was a financially insolvent shell corporation used by De Long to avoid individual liability. ER 328-29. They alleged De Long took their money, did not intend to complete the landscaping work, and used the money for other purposes. ER 338. The Foxes sought a determination of non-dischargeability under

/////11 U.S.C. § 523(a).³ ER 338-40. De Long answered the Foxes' complaint, denying Cascadian was his alter ego,⁴ denying he had contracted with the Foxes in an individual capacity, and denying he had defrauded the Foxes, among other things. Answer, No. 12-2298 (E.D. Cal. filed Jul. 9, 2012), ECF No. 8.

A. Pre-Trial Proceedings

During pre-trial discovery, the Foxes served De Long with requests for admissions. ER 112-16. The Foxes asked De Long to admit, among other things, that he did substandard work, intended to defraud them, diverted their money to other uses, never intended to complete the job, and had no evidence in his defense. ER 114-16. De Long's response was due on February 28, 2013, see Fed. R. Civ. P. 36(a)(3); ER 20, 48, but he did not provide it until June 14, 2013, ER 49. Because his response was untimely, De Long was deemed to have admitted each request. See Fed. R. Bankr. P. 7036; Fed. R. Civ. P. 36.⁵ The parties agree that if these deemed admissions were not withdrawn, they entirely disposed of the case. Fox Br. 7-8, ECF No. 11; De Long Br. 18, ECF No. 17; see also ER 127-28, 130.

///// A pretrial hearing was set for January 15, 2014. ER 2. Before the hearing, on November 19, 2013, De Long filed a motion to withdraw his deemed admissions. ER 4-5. De Long argued the admissions should be withdrawn because the requests for admission "mirror[ed] the allegations in [the Foxes'] Complaint, all of which [De Long] denied in his Answer." ER 16. Should the court deny his motion, he argued, it would be impossible to address the merits of the parties' dispute. ER 16. Moreover, the Foxes would not be prejudiced if the admissions were withdrawn because discovery remained open. Id. at 16-17. De Long's counsel attached a declaration and explained he had timely prepared responses to the Foxes' requests, but De Long did not return his verification until June. ER 20. The Foxes opposed the motion. ER 24-38. They argued De Long had not shown good cause for his delay, ER 32-35, and they would suffer prejudice because only one month of discovery remained, ER 35-37.

The bankruptcy court held a hearing on December 17, 2013. ER 77-99. At the hearing, the bankruptcy judge asked De Long for evidence of good cause for his delay. ER 86-89. De Long's attorney responded that he had been on medical leave, that his office had experienced turnover among the associates assigned to the case, and that De Long had not timely returned his verification. Id. After hearing the parties' arguments, the bankruptcy court denied the motion and explained as follows:

This adversary proceeding was filed back in July of 2012, it's set to go to trial in January of 2014, withdrawing the admissions at this point presumably would require discovery to be reopened and extensive discovery for trial to be undertaken with respect to those admissions.

. . . [T]hat prejudice could possibly be dealt with, but then . . . the third point is whether there's good cause shown for the delay.

[The court cited Conlon v. United States, 474 F.3d 616, 622 (9th Cir. 2007), and S.E.C. v. Global Express Capital Real Estate Investment Fund I, LLC, 289 F. App'x 183 (9th Cir. 2008)] . . . I've attempted to plumb the evidence and the arguments being presented now [for] some reason for the delay from February of 2013 to November 2013 for the filing of this motion.

First, the explanation and the evidence presented is that the defendant just didn't provide Counsel with the [signed] verification to send it back.. . . Counsel has indicated . . . he was out of the office with some illness, there are other attorneys no longer with the firm who were supposed to be watching it.

Okay. But by July 2013 and August it's clear that there are admissions that the plaintiff's counsel has said my client will not allow me to withdraw them and then again in October that gets reaffirmed when now here we are in December of 2013 with this.

I do not see and hear any good cause.

. . .

This case is going eighteen months into it, it's ready to go to trial. And what I'm hearing from the defendant is the cause you have is that I didn't want to respond and now if you grant [my] motion then we don't have to go to trial in January.

ER 96-98; see also ER 77 (minute order denying the motion). The case went forward.

B. Motions in Limine

The pre-trial conference and trial were continued by stipulation. ER 318-19; see also Stipulation, No. 12-2298 (E.D. Cal. filed Jul. 9, 2012), ECF No. 12.⁶ During that time discovery remained open for production of De Long's banking records, which he never fully produced. ER 192-93.

On June 11, 2014, about five months after the court denied the motion to withdraw, the parties appeared for trial. ER 190. A different bankruptcy judge presided. ER 188. The Foxes hand-filed two motions in limine, seeking exclusion of any evidence or arguments inconsistent with the deemed admissions and the exclusion of the Declaration of Robert De Long. Both motions were denied. ER 185-86, 197. De Long also hand-filed a motion in limine, which again sought withdrawal of his deemed admissions, and he presented largely the same arguments as he had before. ER 173-81. The Foxes opposed the motion at oral argument,⁷ pointing out that they had prepared for trial on the basis of the previous order. ER 194-95. The Foxes accused De Long of gamesmanship for renewing his motion at "the last hour." Id.

The court found the Foxes were themselves guilty of gamesmanship and questioned the propriety of their requests for admissions. The court asked, "Why do you bother to ask the defendant to admit something that obviously goes against the crux of his answer, . . . and then expect to go to trial and convince me, the trial judge, that you have a case?" ER 195, 202. This strategy, in the court's opinion, could not make for a triable case. Id. at 195. In reaching this conclusion, the court found Perez v. Miami-Dade County, 297 F.3d 1255 (11th Cir. 2002), was persuasive authority. ER 222-23. The court also criticized the Foxes' litigation strategy:

I was a practicing attorney for a while. I wouldn't be charging debtor with fraud or things like that unless I felt I had a damn good case. . . . To go into a case without your facts and your ducks in a row, even if there's so-called admissions that allow them, that's something that I don't think is right.

ER 204-05.

Turning to Rule 36(b), the court found prejudice to the Foxes would be minimal if the admissions were withdrawn because discovery had been extended several times. ER 196. The court therefore granted De Long's motion in limine, despite the previous order denying his motion to withdraw:

The Court can always change its mind and, unfortunately, I have looked at it and I just don't go along with it. I don't think that the defendant should be permitted [sic] to produce evidence that supports his case. Even if . . . [the answer] to the requests [was] submitted at a late date, I still feel the defendant should be permitted to provide a defense.

. . .

I think I have authority to grant the motion, even though it was previously denied, because the circumstances have changed, for one thing. Another is, I'm the trial judge and there's no way—there is absolutely no way I can render a fair decision if the defendant is barred from presenting a case.

ER...