United States District Court, S.D. New York
June 29, 2004.
In re: LITAS INTERNATIONAL, INC., Debtor. WINOC BOGAERTS, Appellant,
PNL ASSET MANAGEMENT, L.P., Appellee.
The opinion of the court was delivered by: GERARD E. LYNCH, District Judge
OPINION AND ORDER
Winoc Bogaerts appeals from a judgment of the United States
Bankruptcy Court for the Southern District of New York (Drain,
J.) dated October 16, 2003, denying his motion for relief from an
order dismissing his claims for failure to comply with discovery.
(Rubin Decl., Ex. B.) This Court shares the general judicial
distaste for disposing of cases by defaults and sanctions rather
than on the merits. Am. Alliance Ins. Co., Ltd. v. Eagle Ins.
Co., 92 F.3d 57, 62 (2d Cir. 1996); Enron Oil Corp. v.
Diakuhara, 10 F.3d 90, 96 (2d Cir. 1993); Traguth v. Zuck,
710 F.2d 90, 94 (2d Cir. 1983). But at times a party's complete
disregard for court rules, judicial orders, and indeed, the
prosecution of its own claims, requires a court to impose extreme
sanctions, for discovery sanctions must remain a "credible deterrent rather than
a `paper tiger.'" Update Art, Inc. v. Modiin Publ'g, Ltd.,
843 F.2d 67, 71 (2d Cir. 1988); see also SEC v. McNulty,
137 F.3d 732, 738 (2d Cir. 1998); Bambu Sales, Inc. v. Ozak Trading,
Inc., 58 F.3d 849, 853-54 (2d Cir. 1995).
In this action, which involves a complex dispute over the
relative priority of mortgages on an Ulster County property,
Bogaerts has managed to delay the resolution of his own claims in
the bankruptcy court for nearly five years through a pattern of
deliberate disregard of judicial orders and discovery rules.
Indeed, it is symptomatic of the difficulties of conducting this
litigation that the issue now before the Court essentially
relates to events in 1999 and 2000. On August 7, 2000, the
bankruptcy court entered a supplemental order conditionally
dismissing Bogaerts's claims for his failure to comply with
appellee PNL Asset Management, L.P.'s ("PNL") document demands,
to appear for his deposition, and to pay monetary sanctions
imposed by that court by a similar written order issued about one
month earlier. (Rubin Aff., Ex. A-1.) After a futile series of
appeals and a simultaneous motion to reopen, which the bankruptcy
court dismissed for want of jurisdiction in light of the pending
appeal, the Second Circuit ultimately held that the bankruptcy
court's conditional order of dismissal, which purported to mature
into a final judgment should Bogaerts fail to comply with its
conditions, did not constitute a final judgment triggering
Bogaerts's time to appeal. In re Litas Int'l, Inc.,
316 F.3d 113 (2d Cir. 2003). The Court of Appeals therefore remanded the
case back to the bankruptcy court for that court to enter a
separate final judgment, which it did on August 13, 2003.
Bogaerts then moved for relief from that judgment, which the
bankruptcy court denied by order dated October 16, 2003. Bogaerts
now appeals from that denial. The bankruptcy court's order will
be affirmed. BACKGROUND
This is not a case, as Bogaerts would have it, in which a poor
or ignorant, unrepresented layman misses a few discovery
deadlines, suffers the unduly harsh sanction of a default
judgment as a consequence, and then appears in court asserting a
meritorious excuse or justification for his previous derelictions
and seeking to litigate his claims on the merits. (Appellant's
Br. 4-7.) Nor does the record bear out Bogaerts's accusation that
"PNL has been using discovery as a means to harass a frail man
and to unfairly take advantage of him at a time when he was
acting pro se." (Id. 8-9.) Bogaerts purports to hold a mortgage
for $1.3 million on a valuable piece of real estate (Bogaerts
Aff. ¶ 5); he has been intermittently represented by four
different attorneys (Bogaerts Aff. ¶¶ 7, 24; Rubin Decl. ¶¶ 13,
25, 46, 48), and moreover, ably represented himself on appeal to
the Second Circuit (Appellant's Reply Br., Ex. A); and before the
bankruptcy court dismissed his claims, Bogaerts received several
warnings and lesser sanctions for his refusal to comply with his
discovery obligations and his utter disregard of that court's
orders. See Bogaerts v. Shapiro, No. 00 Civ. 7798, 2002 WL
100636, at *1-*2 (S.D.N.Y. Jan. 25, 2002) (adopting Report and
Recommendation of Magistrate Judge Theodore H. Katz (Rubin Decl.,
Ex. A-2)), rev'd on other grounds, In re Litas, 316 F.3d 113.
On July 12, 2000, after Bogaerts failed to respond to PNL's
motion to compel discovery or to appear at the court hearing on
that motion, the bankruptcy court imposed $2500 in sanctions and
ordered that unless Bogaerts complied with his discovery
obligations by certain fixed dates, his claims would be
"dismissed with prejudice without any further order of the
Court." (Rubin Decl., Ex. A-32.) Bogaerts did nothing. On August
7, 2000, rather than dismiss his claims, the bankruptcy court
issued a supplemental order that extended the deadlines
established by the prior order and thereby "gave him another chance to fulfill the
required conditions." Bogaerts, 2002 WL 100636, at *1. Again,
the bankruptcy court order warned that absent compliance,
Bogaerts's claims would "be deemed dismissed with prejudice
without further order of the Court" (Rubin Decl., Ex. A-1), and
again, Bogaerts did nothing to cure his default. Id. at *2.
In his application to reopen, Bogaerts argues that his defaults
should be excused because (1) during the relevant period, he
lacked representation, and (2) due to a dispute with his landlord
that caused interruptions in his mail service, he did not receive
actual notice of the bankruptcy court's commands. (Bogaerts Aff.
¶¶ 12-23.) Notably, Bogaerts made these exact same claims on his
prior appeal, and Magistrate Judge Katz rejected them in a
thorough report and recommendation, which, in turn, was adopted
by this Court (Casey, J.). (Rubin Decl., Exs. A-2, A-3.) These
findings were based on the indisputable facts that Bogaerts
himself corresponded with lawyers for PNL during the relevant
period, expressly acknowledged his awareness of one of the
court's rulings, and consulted with counsel as to another.
Bogaerts, 2002 WL 100636, at *3. (See also Rubin Decl, Ex.
A-2 at 14 & n. 3, 17 n. 5; id., Exs. 32-38.) In any event, even
if Bogaerts did not receive a copy of one or more of the court's
orders, that fact, as Judge Casey emphasized, would not, as a
matter of law, excuse him from his obligation to monitor the
docket and keep himself informed of developments in the
litigation. See id. at *3, citing In re Sweet Transfer &
Storage, Inc., 896 F.2d 1189, 1193 (9th Cir. 1990). (Rubin
Decl., Ex. A-2 at 13 (collecting cases).) It would have been a
simple matter for Bogaerts to check the court docket or retain a
lawyer to do so on his behalf.
Bogaerts's argument that his default resulted from stress
brought on by harassment by a powerful adversary's oppressive
discovery demands is belied by the record. The record does not reflect excessive or burdensome discovery demands by PNL; to the
contrary, it reflects a failure on the part of Bogaerts to
complete a single deposition, to reply to notices and
correspondence, to appear at court conferences, and to comply
with court orders compelling disclosure. Virtually every judicial
officer who has had responsibility for managing this action, or
who has reviewed the record, has found Bogaerts's excuses to be
meritless, if not sanctionable.*fn1 Magistrate Judge Katz
concluded that Bogaerts "not only failed to monitor his case; he
actually absented himself from the litigation and defaulted on
his discovery obligations, thereby giving rise to his ignorance
of developments in the case. Indeed, the bankruptcy court gave
[Bogaerts] greater latitude than was required in its July 12,
2000 Amended Order, and set new deadlines for [his] compliance
and the dismissal of his claims if he failed to comply." (Rubin
Decl., Ex. A-2 at 14.) A district court reviewing the exercise of
discretion by courts confronted with such behavior must pay due
regard to the factual findings of those who have had first-hand
responsibility for monitoring and developing a detailed knowledge
of the dynamics of the litigation. See In re Casse,
198 F.3d 327, 341 (2d Cir. 1999) (emphasizing that because the bankruptcy
court is "able to view firsthand the actions and statements of
the parties, and . . . to view the conduct of those parties over
an extended period of time, the reviewing court will not
substitute its judgment for that of the bankruptcy court in the
absence of a finding of abuse of discretion") (internal quotation
marks and brackets omitted).
Because of Bogaerts's behavior, the bankruptcy court issued two
virtually identical orders cautioning that his claims would be
dismissed unless he (1) complied with outstanding document discovery, (2) appeared for the completion of his deposition, (3)
paid PNL $2500 as a sanction for his refusal to comply with
discovery and the costs this imposed on PNL, (4) delivered to the
court an affidavit affirming that he paid that sanction, and (5)
certified in writing to the court that he complied with the
order. (Rubin Decl., Exs. A-32, A-1.) This appeal does not
challenge that order or the consequent default entered some three
years later; it challenges only Judge Drain's decision, after
full briefing and argument, to deny Bogaerts's motion to reopen.
(Id., Exs. B, C.)
Bogaerts appeals only from the denial of his motion to reopen
the case pursuant to F.R.Bankr.P. 9024 (Appellant's Br. 1),
which, subject to enumerated exceptions, incorporates the
standard for relief from judgment set forth in Fed.R.Civ.P.
60. Federal district courts review the denial of such motions for
abuse of discretion, Key Mech. Inc. v. BDC 56 LLC, No. 01 Civ.
10173, 2002 WL 467664, at *2 (S.D.N.Y. Mar. 26, 2002), and
findings of fact may be set aside only if clearly erroneous.
F.R.Bankr.P. 8013; see In re Manville Forest Prods. Corp.,
896 F.2d 1384, 1388 (2d Cir. 1990).
To find an abuse of discretion, the Court must be persuaded
that the bankruptcy court "acted in an arbitrary and irrational
fashion," Tesser v. Bd. of Educ., 370 F.3d 314, 318 (2d Cir.
2004) (internal quotation marks omitted), either because it erred
as a matter of law or reached a clearly erroneous finding of
fact, or because its judgment "cannot be located within the range
of permissible decisions." Mony Group, Inc. v. Highfields
Capital Mgmt., L.P., 368 F.3d 138, 143-44 (2d Cir. 2004)
(internal quotation marks omitted); see also In re Casse, 198
F.3d at 327. Here, the bankruptcy court's decision cannot
plausibly be characterized as an abuse of discretion; to the
contrary, the record makes clear that it was not only
"permissible," but correct. Because a motion for relief from judgment seeks "extraordinary
judicial relief," it will be granted only where the movant "meets
its burden of demonstrating `exceptional circumstances.'"
Paddington Partners v. Bouchard, 34 F.3d 1132, 1142 (2d Cir.
1994), quoting Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.
1986); see also Jedrejcic v. Croatian Olympic Comm.,
190 F.R.D. 60, 76-77 (E.D.N.Y. 1999). In the context of a default judgment,
a court's decision whether to permit relief from judgment should
be based on three criteria: "(1) whether the default was willful;
(2) whether setting aside the default would prejudice the
adversary; and (3) whether a meritorious defense is presented."
Diakuhara, 10 F.3d at 96; see also In re Reilly, 213 B.R. 50,
52 (D. Conn. 1997) (enunciating and applying these criteria in
bankruptcy proceeding). Judge Drain correctly identified and
applied this standard. (Rubin Decl., Ex. C at 35-40.)
First, Judge Drain, like Magistrate Judge Katz before him,
found that Bogaerts willfully disregarded the court's orders.
Specifically, he stated:
I believe that he has shown a willful disregard of
the orders of the court and the procedures of the
court in this adversary proceeding. This is not a
simple matter of Mr. Bogaerts being left in the lurch
by his counsel and being given inadequate time to
find new counsel. . . . Rather, I find that there has
indeed been roughly a year and a half's worth of
disregard of the procedures for the conduct of this
adversary proceeding, culminating in a period of
disregard where Judge Bohanon was first made aware of
the issue of a potential default in May of 2000. And
over the course of the period between May and August,
[he] issued two rulings to give Mr. Bogaerts the
chance to comply with the legitimate discovery
requests of PNL, which he did not do.
(Id. at 35-36; compare Rubin Decl., Ex. A-2 at 13-14.)
Contrary to Bogaerts's argument, Judge Drain's finding that
Bogaerts wilfully disregarded judicial orders and the discovery
process is not "a matter of law" that "[t]his Court must review
. . . de novo." (Appellant's Br. 6.) It is a finding of fact about Bogaerts's state of mind made by a court with great
familiarity with the record.
Judge Drain specifically rejected as "not . . . credible"
Bogaerts's contention that he did not know about Judge Bohanon's
orders. (Rubin Decl., Ex. C at 36.) In particular, he noted that
Bogaerts had been advised to retain new counsel in 1999; "that he
was aware that Judge Bohanon regularly scheduled conferences in
the litigation and that there was ongoing discovery that needed
to be completed," but nevertheless "made no request either of PNL
or his counsel or the court with regard to the status of the
ligation, with regard to his alleged problems in obtaining
notice, and with regard to his alleged problems in obtaining an
attorney"; and that Bogaerts "did receive, on occasion, letters
from his opponent in the case to which he responded," but "again,
he never advised anyone that he had a problem getting mail or
that he might need an adjournment in the case." (Id. 36-37.)
Judge Drain thus ultimately "agree[d] with Magistrate Judge Katz
that for a lengthy period, notwithstanding several opportunities
to take action to protect himself, Mr. Bogaerts absented himself
from this litigation." (Id. 37.) Equally emphatically, Judge
Drain rejected Bogaerts's argument that the bankruptcy court
lacked a "meaningful basis to [issue] the discovery order in the
first place." (Id. 40.) He found that Bogaerts's "actions
prevented PNL from taking important and significant discovery
going to the bona fides of the mortgage and the assignment that
Mr. Bogaerts is relying on." (Id.) These findings, far from
being clearly erroneous, enjoy ample support in the record.
Second, Judge Drain found that the delays occasioned by
Bogaerts's disregard of orders and discovery rules prejudiced
PNL. (Id. 37-38.) Bogaerts concentrates his fire on this
finding, arguing that the record discloses no evidence to support
the finding that PNL has had to extend an appeal bond over a four
year period. (Appellant's Br. 8.) That is incorrect. While PNL
did not introduce specific evidence that such costs had actually been
paid, it is a reasonable inference in the circumstances that the
bond would not have been continued without additional premiums.
In any event, Judge Drain specifically concluded that "the cost
and expense incurred by PNL [as a consequence of Bogaerts's
willful disregard of the court's orders] is a relevant factor, as
is the accruing interest on Mr. Bogaerts'[s] mortgage, if in fact
it turned out that he had a valid and senior mortgage, which
would reduce the recovery that PNL would have on its junior
mortgage under that scenario. So, I believe that there has been
prejudice here." (Rubin Decl, Ex. C at 38.) Finally, it cannot be
ignored that this is ultimately a dispute over real property, and
in this context, delay in settling the question of mortgage
priorities is inherently prejudicial.
Third, while the parties vigorously dispute the merits of the
underlying litigation, Judge Drain found that Bogaerts "may
just barely satisfy this standard" (Rubin Decl., Ex. C at 39;
emphasis added), but that "there's really a substantial doubt"
about whether Bogaerts possesses a meritorious claim,
particularly because "there's no underlying documentation as to
the amount of his claim that is secured by the alleged mortgage."
(Id.) Hence, he concluded, this factor "is at best only weakly
satisfied by Mr. Bogaerts." (Id. 40.)
No one of the three factors enunciated in Diakuhara is
controlling; rather, a court "must balance the relative weight of
each of these factors in an effort to arrive at an equitable
result." In re Treco, No. 95-44326, 2001 WL 1566701, at *8
(Bankr. S.D.N.Y. Dec. 10, 2001). Here, Judge Drain's strong
finding of willfulness, coupled with some evidence of prejudice
and at best a very weak showing of a meritorious claim, fully
supports his careful balancing of these factors and ultimate
conclusion not to grant Bogaerts's motion for relief from the
default judgment. The bankruptcy court's decision contains no
errors of law or clearly erroneous findings of fact, nor is there anything "arbitrary and irrational," Tesser, 370 F.3d at
318, about the manner in which the court balanced the relevant
factors and reached its decision. Because the bankruptcy court
did not abuse its discretion, its decision must be affirmed.
For the reasons stated, the order of the bankruptcy court
denying Bogaerts's motion to reopen the judgment against him is