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In re Tukhi

United States Bankruptcy Appellate Panel of the Ninth Circuit

May 30, 2017

In re: AHMAD J. TUKHI, Debtor.
AHMAD J. TUKHI, Appellee. ABDUL HABIB OLOMI, Appellant, Bk. No. 8:15-bk-14015-MW Adv. No. 8:15-ap-01449-MW

          Argued and Submitted on March 23, 2017 at Pasadena, California

         Appeal from the United States Bankruptcy Court for the Central District of California Honorable Mark S. Wallace, Bankruptcy Judge, Presiding

          Nikolaus W. Reed argued for appellant;

          Randal Paul Mroczynski of Cooksey, Toolen, Gage, Duffy & Woog argued for appellee.

          Before: KURTZ, FARIS and LAFFERTY, Bankruptcy Judges.


          KURTZ, Bankruptcy Judge.


         Abdul Habib Olomi appeals from a judgment dismissing his nondischargeability action against chapter 7[1] debtor Ahmad J. Tukhi. The bankruptcy court dismissed the action because Olomi appeared for a pretrial conference without having filed or served a pretrial stipulation as required by the bankruptcy court's Local Rule 7016-1(b) and (c). According to the bankruptcy court, Olomi's noncompliance was the result of the "fault" of his counsel but was neither willful nor done in bad faith.

         Even though this one-time act of noncompliance would have resulted merely in several weeks of delay in the pretrial proceedings, the bankruptcy court held that dismissal was appropriate either under its Local Rule 7016-1(f) sanctioning authority or as a failure to prosecute under Civil Rule 41(b) (made applicable in adversary proceedings by Rule 7041). The bankruptcy court's dismissal order was an abuse of discretion. The bankruptcy court did not apply the correct legal standard before imposing the sanction of dismissal based on a Local Rule violation. Furthermore, the facts in the record do not support dismissal either based on the Local Rule violation or based on a failure to prosecute.

         Accordingly, the bankruptcy court's judgment of dismissal is VACATED, and this matter is REMANDED for completion of pretrial proceedings and the setting of a trial date.


         Tukhi commenced his bankruptcy case in August 2015, and Olomi timely filed a nondischargeability complaint against Tukhi in November 2015. Olomi stated a single claim for relief under § 523(a)(6) for a debt allegedly arising from a willful and malicious injury. According to Olomi, Tukhi intentionally struck him with an automobile.

         The nondischargeability action proceeded without incident - even smoothly - up until the time the parties' joint pretrial stipulation was due. In the bankruptcy court's scheduling order entered March 7, 2016, the bankruptcy court set a pretrial conference date of September 28, 2016. The scheduling order contained the following warning:

The parties are placed on notice that it is the Court's policy to strictly enforce the Local Bankruptcy Rules relating to pre-trial conferences and this Court's procedures supplement to those rules, which are published on the court's website. Failure to comply with the provisions of this order may subject the responsible party to sanctions, including judgment of dismissal or the entry of a default and a striking of the answer.

Scheduling Order (Mar. 7, 2016) at pp. 2-3 (emphasis in original).

         The bankruptcy court obviously considered it extremely important to obtain the litigants' compliance with its pretrial procedures. The scheduling order admonition was the fourth of four advance warnings regarding the importance of adhering to required pretrial procedures. At the initial status conference held immediately before the scheduling order was issued, the bankruptcy court stated as follows:

THE COURT: And the Court wishes to advise the parties that the Court applies the Local Bankruptcy Rules relating to pretrial conferences very strictly. The Court views the pretrial conference as an indispensable part of the resolution of this matter and probably the second most important proceeding after the trial itself.
And for that reason, it's the Court's practice that if there is a material default by the plaintiff in compliance with the Local Bankruptcy Rules relating to pretrial conferences, the most likely outcome is that the Court will grant judgment of dismissal in favor of the defendant and, on the other hand, if there's a material default by the defendant, the Court's most likely outcome is that the Court would strike the answer and enter a default.
These consequences are in the nature of terminating sanctions. The Court believes that those types of -- that that type of sanction is appropriate in connection with pretrial conferences because to allow a material breach of those rules and to simply impose a monetary sanctions it could be viewed as setting up a situation where there's simply a toll charge for violating the Local Bankruptcy Rules and I don't think that's appropriate. So the parties are on notice of the Court's intentions in this regard and the Court will certainly be looking to the parties to fully comply with those Local Bankruptcy Rules.

Hr'g Tr. (Mar. 2, 2016) at 4:14-5:15.[2]

         There were similar warnings about the importance of the pretrial procedures in form instructions accompanying the summons and in the presiding judge's supplemental procedures set forth on the court's website. Indeed, the form instructions accompanying the summons stated:

11. Joint Pre-Trial Order. Failure to timely file a Joint Pre-Trial order may subject the responsible party and/or counsel to sanctions, which may include dismissal of the adversary proceeding. The failure of either party to cooperate in the preparation of timely filing of a Joint Pre-Trial Conference [sic] or appear at the Joint Pre-Trial Conference may result in the imposition of sanctions under LBR 7016-1(f) or (g).

Early meeting of Counsel and Status Conference Instructions (Nov. 19, 2015) at ¶ 11 (emphasis in original).

         Notwithstanding all of these warnings, and the unequivocal requirement set forth in Local Rule 7016-1(b) and (c) for the preparation, service and filing of a joint pretrial stipulation in advance of the pretrial conference, Olomi attended the pretrial conference without having first served or filed the requisite pretrial stipulation. When the court asked Olomi's counsel where his pretrial stipulation was, counsel explained that he had mistakenly prepared and filed instead a joint status report because he was inexperienced in practicing before the bankruptcy court and had misread what the "statute" required. The bankruptcy court seemed to credit counsel's explanation for his noncompliance but nonetheless concluded that dismissal was appropriate under Local Rule 7016-1(f)(4). The court reasoned that dismissal was justified because: (1) the pretrial conference and the pretrial procedures were very important; (2) Olomi had been warned of that importance and of the consequences for failure to comply; and (3) lesser sanctions in the form of monetary sanctions would amount to nothing more than a "toll charge" for violating the very important pretrial procedures. The bankruptcy court reiterated the same reasoning in its written order of dismissal.

         Within a few days of the bankruptcy court's dismissal ruling, Olomi simultaneously filed both a notice of appeal and a motion for reconsideration. Olomi explicitly based his reconsideration motion on Civil Rule 60(b)(1), as made applicable in bankruptcy cases pursuant to Rule 9024. Olomi maintained that the court should grant him relief from his excusable neglect ...

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