Smith et al v. Atlantic Southern Bank
Filing
31
ORDER Affirming the Bankruptcy Court's Order re: 1 Notice of Appeal. Order denying as moot 23 Motion to Vacate and 26 Motion for Extension of Time to File Response. The Clerk is instructed to close the case and enter an appropriate judgment. Signed by Chief Judge Lisa G. Wood on 5/3/2012. (csr)
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In tfjt lintttb Statto DItrttt Court
for ttit £'outljrni Martet of atoratia
3Irunshitck flibi%ton
IN RE:
MARVIN B. SMITH, III and
SHARON H. SMITH,
Debtors.
MARVIN B. SMITH, III and
SHARON H. SMITH,
Appellants,
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ON APPEAL FROM:
CASE NO. 07-20244-JSD
(Chapter 7)
CV 211-057
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V.
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ATLANTIC SOUTHERN BANK,
Appellee.
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ORDER
Presently before the Court is Appellants Marvin B. Smith,
III, and Sharon H. Smith's ("Smiths") appeal from Bankruptcy
Court Judge John S. Dalis's order Dismissing the Smiths'
Adversary Proceeding against Appellee Atlantic Southern with
Prejudice and Denying Sanctions. Dkt. No. 1-1. For the reasons
stated below, the Bankruptcy Court's order is AFFIRMED.
The Smiths are a retired couple whose livelihood once
consisted of the buying and reselling of residential properties.
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Due to the real estate market's decline, the Smiths were left
holding properties they were unable to sell, and with promissory
notes they were unable to pay. This set of circumstances
resulted in the Smiths filing of a chapter 11 case on April 2,
2007, and the conversion of the case under chapter 7 on May 8,
2008. The Smiths' dispute with Atlantic Southern Bank' concerns
the real property identified as Cottage 526, 24th Street, Sea
Island, Georgia ("Sea Island Cottage") . The Smiths' have pled,
but refused to prosecute this claim concerning the Sea Island
Cottage in a total of three adversary proceedings over multiple
years. For some unknown reason, the Smiths have been unwilling
to prosecute their claim against Atlantic Southern Bank as an
adversary proceeding, as is required under Rule 7001.
The factual and procedural background that has led to this
appeal is extensive, and is thoroughly set forth in Judge
Dalis's Order dismissing the Smiths' adversary proceeding and
denying sanctions. Dkt. No. 1-1 at 2-17. To summarize Judge
Dalis's Order (Dkt. No. 1-1) and the lengthy record before the
Court, this case involves a multi-year process involving three
adversary proceedings, 2 a voluminous number of improper motions
'The Federal Deposit Insurance Corporation is now the Receiver for Atlantic
Southern Bank. Dkt. No. 18.
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The first Adversary Proceeding (No. 08-02018) was initiated by Atlantic
Southern Bank on August 28, 2008. On November 25, 2008 the Smiths Amended
their Counterclaim to include a claim regarding the Sea Island Cottage. This
Amended Counterclaim was followed by numerous motions filed by the Smiths and
repeated requests for extensions of time. After these extensive filings, the
Smiths moved to voluntarily dismiss the counterclaim on June 11, 2009. The
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(Rev. 8/82)
and wholly frivolous appeals filed by the Smiths, as well as a
complete refusal by the Smiths to comply with Rules of
Bankruptcy or the Orders of Judge Dalis.
STANDARD OF REVIEW
A district court reviewing the decision of a bankruptcy
court functions as an appellate court. In re Sublett, 895 F.2d
1381, 1383-84 (11th Cir. 1990) . A district court reviews a
bankruptcy court's legal conclusions
de
novo, In re New Power
Co., 438 F.3d 1113, 1117 (11th Cir. 2006), and factual findings
for clear error. In re Gamble, 168 F.3d 442, 444 (11th Cir.
1999)
next two adversary proceedings (No. 09-02041 and No. 09-02033) followed
shortly thereafter. Beginning on July 6, 2009, the Smiths filed a barrage of
motions in the underlying bankruptcy case related to the claim set forth in
the Amended Counterclaim. None of the motions could be adjudicated as
contested matters, because the relief the Smiths repeatedly sought—damages
for stay violation and determination of an interest in real property—is
available only through the filing of an adversary proceeding. Because the
motions could not be adjudicated as contested matters within the bankruptcy
case, Judge Dalis ordered the opening of two adversary proceedings in which
the incorrectly filed motions and other papers would be redocketed as
complaints and amendments to the complaints, along with any responses that
Atlantic Southern had already filed. In Judge Dalis's Orders opening these
two adversary proceeding the Clerk of Court was ordered to issue summons so
that the Smiths could perfect service under Rule 7004 of the Bankruptcy
Rules. Accordingly, adversary proceeding number 09-02041 was opened as Smith
v. Sapelo Southern Bank & Atlantic Southern Bank and adversary proceeding
number 09-02033 was opened as Smith v. Atlantic Southern Bank. The Smiths
refused to prosecute either of the adversary proceedings. Instead of
prosecuting the adversary proceedings, the Smiths appealed to the district
court from the orders related to the opening of the adversary proceedings, as
well as from an order striking a motion that could not be considered as
filed. After being denied on appeal by this Court and the Eleventh Circuit,
the Bankruptcy Clerk's office issued summons for the third time in the
Atlantic Southern adversary proceeding. One week later, on December 15, 2010,
the Smiths moved for voluntary dismissal without prejudice.
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(Rev. 8/82)
DISCUSSION
Rule 41 of the Federal Rules of Civil Procedure, made
applicable in bankruptcy by Rule 7041 of the Bankruptcy Rules,
provides in relevant part as follows:
If the plaintiff fails to prosecute or to comply with
these rules or a court order, a defendant may move to
dismiss the action or any claim against it. Unless the
dismissal order states otherwise, a dismissal under
this subdivision (b) ... operates as an adjudication
on the merits.
Fed. R. Civ. P. 41(b). The Local Rules of the United States
District Court for the Southern District of Georgia, applicable
in bankruptcy cases and proceedings, also provide for dismissal
with prejudice for want of prosecution and for "willful
disobedience or neglect of any order of the Court." S.D. Ga.
Civ. R. 41.1.
In the Eleventh Circuit, the standard for dismissal with
prejudice under Rule 41(b) is "whether there is a clear record
of delay or willful contempt and a finding that lesser sanctions
would not suffice." Goforth v. Owens, 766 F.2d 1533, 1535 (11th
Cir. 1985) (internal quotation marks omitted). Dismissal with
prejudice is "a sanction of last resort, applicable only in
extreme circumstances." Id. In this circuit, courts are to use
a two-part analysis for determining when an action should be
dismissed as a sanction under Rule 41(b): there must be both a
clear record of willful conduct and a finding that lesser
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sanctions are inadequate. Baltimore v. Jim Burke Motors, Auto.,
300 F. App'x 703, 707 (11th Cir. 2008) . In addition to its power
under Rule 41(b), a court also has the inherent ability to
dismiss a claim in light of its authority to enforce its orders
and provide for the efficient disposition of litigation. Zocaras
v. Castro, 465 F.3d 479, 483 (11th Cir. 2006).
Judge Dalis's Order articulated five grounds as to why
dismissal with prejudice was warranted. This Court is in
complete agreement with the Bankruptcy Court, as there is a
clear record of willful conduct by the Smiths in that they have
repeatedly and blatantly failed to follow the orders of the
Bankruptcy Court, and it is quite apparent that lesser sanctions
would not suffice. The Court also agrees that the Bankruptcy
Court was proper in exercising its inherent authority in this
regard, as it had the authority to enforce its orders and
provide for the efficient disposition of litigation.
1. Failure to Prosecute
Many years have passed since the Smiths first alleged the
current claim against Atlantic Southern Bank. Since November
25, 2008, the date of the Amended Counterclaim, the Smiths have
filed a myriad of improper motions and three frivolous appeals.
During this time, the Smiths have steadfastly refused to
prosecute this claim in compliance with the Judge Dalis's Orders
and in the only way the Bankruptcy rules allow: through an
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(Rev. 8/82)
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adversary proceeding as provided under Rule 7001. This conduct
amounts to a want of prosecution. See Jones v. Graham, 709 F.2d
1457, 1462 (11th Cir. 1983) (noting that "[t]he court was
entitled to consider, however, the long pattern of conduct which
amounted to want of prosecution and several failures by
plaintiffs to obey court rules and orders")
Additionally, dismissal with prejudice may be based on the
plaintiff's unreasonable delay in serving summons. Arundar v.
Staff Builders Temp. Pers., Inc., 92 F.R.D. 770, 771 (N.D. Ga.
1982) . Here, the Smiths have refused to serve summons that was
issued and reissued a total of three times over a period of
eighteen months in the Atlantic Southern Adversary Proceeding.
2. Willful Disreaard of Court Orders
The record also reveals that the Smiths have repeatedly and
brazenly disregarded Judge Dalis's Orders. The Smiths have
simply refused to comply with Bankruptcy Rule 7001 as Judge
Dalis ordered that they do. When Judge Dalis ordered that the
Sapelo Southern Adversary Proceeding opened, the Smiths refused
to cure a filing defect so that summons could be issued. When
Judge Dalis ordered the Atlantic Southern Adversary Proceeding
opened, the Smiths refused for eighteen months to serve summons.
Additionally, for one full year of that time, the Smiths in
effect prevented reissuance of summons by the filing of
frivolous appeals. The Smiths have engaged in a pattern of delay
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and deliberately refused to comply with the Bankruptcy Court's
directions, and therefore, dismissal is warranted. Goforth, 766
F.2d at 1535.
3. Legitimacy of the Excuse
The Court also agrees that the excuse offered by the Smiths
for failing to prosecute their claim is without merit. The
Smiths have simply offered no valid legitimate reason for their
failure to proceed or for their failure to comply with Judge
Dalis's Orders.
4. Prejudice Suffered by Atlantic Southern
As noted by the Bankruptcy Court, dismissal under Rule
41(b) can also be warranted when the defendant has suffered
prejudice as a result of the plaintiff's conduct. Direct Media
Corp. v. Camden Tel. & Tel. Co., 989 F. Supp. 1211, 1220 (S.D.
Ga. 1997). Here, Atlantic Southern Bank, and now the FDIC, has
been required for multiple years to defend the Amended
Counterclaim, the Atlantic Southern Adversary Proceeding, a
score of motions in the underlying case, and three frivolous
appeals. The Smiths' actions in this matter have undoubtedly
prejudiced their counterparts.
5. Prejudice to the Operations of the Court
The purpose of Rule 41(b) is to "allow[ ] the Court to
manage its docket, enforce its orders, and effectuate the prompt
resolution of litigation." Direct Media Corp., 989 F. Supp. at
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1220. The Bankruptcy Court has been forced to expend hundreds
of hours to correctly redocket, substantively address, set for
hearing, and otherwise manage the huge volume of papers the
Smiths have filed over the years of their refusal to prosecute
this claim as the Bankruptcy Rules require.
This disproportionate expenditure of judicial resources has
met its limit and will no longer be tolerated in light of the
Smiths' continued indifference for the requirements of the
Bankruptcy Rules and of the orders issued by Judge Dalis.
Therefore, the Bankruptcy Court was proper in issuing the
dismissal with prejudice, as it was entitled manage its docket,
enforce its orders, and effectuate the prompt resolution of the
litigation.
In sum, the Court is in full agreement with the Bankruptcy
Court that dismissal with prejudice was warranted in this case,
and that no lesser sanction would suffice. The Smiths' simply
cannot be allowed to persist in this manner. Further, the
Smiths' arguments set forth in their Appellant Brief fail to
address the substance of the Judge Dalis's Order. Rather, the
brief consists of a rehash of arguments set forth at various
times by the Smiths completely unrelated to the order of
dismissal. These arguments in no way respond to the order's
rationale for dismissing the adversarial proceeding, or explain
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the Smiths' failure to proceed in compliance with Rule 7001 as
it was repeatedly ordered to do.3
CONCLUSION
For the reasons set forth above, the Bankruptcy Court's
order is AFFIRMED. All other pending motions are DENIED as MOOT.
Dkt. Nos. 14, 17, 21, 23, & 26. The Clerk of Court is
instructed to close the case and enter an appropriate judgment.
SO ORDERED, this 3rd day of May, 2012.
LISA GODBEY IkOOD, CHIEF JUDGE
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF GEORGIA
3 me Court requested supplemental briefing to determine whether the holding in
Stern v. Marshall, 131 S.Ct. 2594 (2011) deprived the Bankruptcy Court of
constitutional authority to issue the order under appeal. This briefing
illustrates that the present case is not affected by the explicitly "narrow"
holding in Stern. Id. at 2618. Accordingly, the Bankruptcy Court had the
statutory and constitutional authority to enter the order now on appeal.
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