Virtual Vision, Inc. v. Praegitzer Industries, Inc.
| Decision Date | 08 September 1997 |
| Docket Number | No. 96-35410,96-35410 |
| Citation | 124 F.3d 1140 |
| Parties | , 31 Bankr.Ct.Dec. 549, Bankr. L. Rep. P 77,489, 97 Cal. Daily Op. Serv. 7210, 97 Daily Journal D.A.R. 11,664 In re: VIRTUAL VISION, INC., a Washington Corporation, Debtor. Virtual Vision, Inc., a Washington Corporation, Plaintiff, v. PRAEGITZER INDUSTRIES, INC., an Oregon Corporation, Defendant-Appellant, D. Blech & Co. Inc., a New York Corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Susan E. Anderson, Teresa H. Pearson, Greene & Markley, Portland, OR, for plaintiff-appellant.
Shalom Jacob, Shereff, Friedman, Hoffman & Goodman, New York City, Joseph E. Shickich, Jr., Graham & James LLP/Riddell Williams P.S., Seattle, WA, for defendant-appellee.
Appeal from the United States District Court for the Western District of Washington. William L. Dwyer, District Judge, Presiding. D.C. No. CV-95-01082-WLD.
Before: WRIGHT, D.W. NELSON and KOZINSKI, Circuit Judges.
Praegitzer Industries appeals the decision of the district court reversing the bankruptcy court's denial of Blech & Company's Rule 60(b)(4) motion to vacate the default judgment in favor of Praegitzer. The bankruptcy court had entered the default judgment on account of Blech's failure to comply with a discovery request. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we reverse the district court's decision.
This case arises from bankruptcy proceedings initiated by Virtual Vision, Inc. Praegitzer and Blech are two of Virtual Vision's creditors with competing claims to Virtual Vision's assets.
After filing for Chapter 11 bankruptcy, Virtual Vision commenced this adversary proceeding to determine the priority of the security interests held by Praegitzer and Blech. On August 25, 1994, at the pretrial conference, the bankruptcy court announced that it had decided to expedite the proceeding due to the high-technology nature of the debtor's business. The court set the trial date for October 18, 1994, and stated that responses to discovery requests should be provided within fifteen days of the request. On the following day, the court issued a written order to the same effect. The order further stated that a possible consequence of failure to comply with a discovery request would be the entry of a default judgment. Blech did not object to the expedited schedule.
On September 13, 1994, Praegitzer served a request for production via fax to the law firm serving as Blech's counsel, Bucknell Stehlik. Responses were due September 28, 1994, in accord with the district court's order. Blech failed to produce the documents on September 28.
On September 30, Praegitzer moved for an order compelling a response to its request. On the same day, Bucknell Stehlik moved to withdraw as Blech's counsel and sought postponement of the adversary proceedings due to Blech's "recent, well-publicized financial setbacks." Bucknell stated that as a "practical matter," because of Blech's dire financial condition, it could not continue representing Blech and could not respond to the discovery requests already due.
On October 7, the bankruptcy court considered Praegitzer's motion to compel discovery and Bucknell's motion to withdraw as counsel. During the hearing, Bucknell noted that it had "sent copies of various correspondence and notices of deposition to [Blech] by fax and mail" but that it was "getting no response."
The court authorized Bucknell's withdrawal but declined to delay the proceedings. Instead, the court ordered Blech to produce the requested documents by October 12 (within three business days). The order stated that if Blech did not comply by that time, the court would enter a default judgment in favor of Praegitzer. The court explained in the order that its reason for compelling discovery so quickly was that "a continuance of the trial would be detrimental to the debtor's ability to reorganize." Although authorized to withdraw from the case, Bucknell received the discovery order in its capacity as attorney for Blech and sent notice of the order to Blech by fax and by mail.
On October 12, Blech had failed to produce the documents and the court consequently
entered a default judgment in favor of Praegitzer. Approximately six months later, on April 27, 1995, Blech moved to vacate the judgment pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure. Following a hearing, the bankruptcy court denied the motion. Blech appealed the denial of the motion to vacate, and the district court reversed. The district court determined that the default judgment had violated Blech's due process rights. The court reasoned that in light of Blech's sudden collapse, Blech's failure to comply with the discovery order was due to circumstances beyond its control. Further, the district court maintained, Blech had received inadequate notice of the impending default judgment. Praegitzer appealed. For the reasons discussed below, we reverse the decision of the district court and hold that Blech's constitutional rights were not violated.
We independently review the bankruptcy court's ruling without deference to the district court's decision. Friedkin v. Sternberg, (In re Sternberg ), 85 F.3d 1400, 1404 (9th Cir.1996). The bankruptcy court's denial of Blech's Rule 60(b)(4) motion to set aside the default judgment as void is a question of law reviewed de novo. United States v. $277,000 U.S. Currency, 69 F.3d 1491, 1493 (9th Cir.1995).
As a threshold matter, we must decide whether we have jurisdiction to consider this appeal. Blech argues that because the district court remanded to the bankruptcy court for further proceedings, the district court's order was interlocutory and therefore unappealable. We rejected this precise argument under nearly identical circumstances in Foothill Capital Corp. v. Clare's Food Market, Inc. (In re Coupon Clearing Serv., Inc.), 113 F.3d 1091, 1097-99 (9th Cir.1997). In Coupon Clearing, we assumed jurisdiction over a district court decision remanding for further proceedings before the bankruptcy court. Id. at 1099. We held that jurisdiction is properly exercised where the central issue is legal in nature and its resolution could dispose of the case. Id. at 1098. Because the propriety of the bankruptcy court's ruling on Blech's 60(b)(4) motion is a legal question and because reinstatement of the default judgment would dispose of this case, Blech's jurisdictional claim must fail.
The central issue in this case is whether the bankruptcy court's default judgment in favor of Praegitzer violated Blech's constitutional right to due process. Blech first argues that the default judgment was constitutionally infirm because the bankruptcy court did not find that Blech's failure to comply with the discovery request was due to willfulness, bad faith, or fault. Second, Blech contends that it received constitutionally inadequate notice of the possibility that a default judgment would be entered. We address each of Blech's due process claims in turn.
With respect to the first argument, we disagree with Blech that the bankruptcy court was required to make a factual finding of willfulness, bad faith, or fault before imposing the default judgment. The critical question is whether there is record evidence that noncompliance was due to willfulness, bad faith, or fault, not whether the trial court made a finding to that effect. See Hyde & Drath v. Baker, 24 F.3d 1162, 1166-69 (9th Cir.1994); Henry v. Gill Industries, Inc., 983 F.2d 943, 948-49 (9th Cir.1993); Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1340 (9th Cir.1985); Munoz-Santana v. INS, 742 F.2d 561, 564 (9th Cir.1984); Thomas v. Gerber Productions, 703 F.2d 353, 356-57 (9th Cir.1983).
It is well established in this circuit that " 'disobedient conduct not shown to be outside the control of the litigant' is all that is required to demonstrate willfulness, bad faith, or fault." Henry v. Gill Industries, 983 F.2d 943, 948 (9th Cir.1993) (quoting Fjelstad v. American Honda Motor Co., 762 F.2d 1334, 1341 (9th Cir.1985)). Here, the First, the record provides considerable evidence that Blech had not completely collapsed at the time of its failure to comply with the discovery order: Blech was equipped with one or two working phones; Blech had bank and brokerage accounts that had been neither frozen nor liquidated; and Blech retained a "select few" employees. Furthermore, Blech does not dispute that on September 30, nine days after its alleged collapse, the company was functioning well enough to negotiate the sale of all its customer accounts to another brokerage firm.
record clearly indicates that Blech's disobedient conduct was well within its control.
There are other indications in the...
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