Spirit SPE Portfolio 2007-1 LLC v. Paxos

Filing 13

Opinion and Order: The Court hereby grants appellee's motion to dismiss (Doc. No. 6 ) and dismisses appellant's appeal with prejudice. Judge Sara Lioi on 10/9/2014. (S,He)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

SPIRIT SPE PORTFOLIO 2007-1 LLC, )
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)
APPELLANT,
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vs.
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)
)
)
CHRISTOPHER PAXOS,
)
)
)
APPELLEE.
)

CASE NO. 5:14CV929

JUDGE SARA LIOI

OPINION AND ORDER

Before the Court are the following motions: (1) appellant’s motion for an
extension of time in which to file an appellate brief (Doc. No. 5 [“Mot. Ex.”]), appellee’s
motion to dismiss and brief in opposition to appellant’s motion for an extension of time
(Doc. No. 6 [“Mot. Dis.”]), and appellant’s motion to strike (Doc. No. 10 [“Mot. Str.”]).
Appellant has filed an opposition to appellee’s motion to dismiss (Doc. No. 8 [“Opp.”]),
and appellee has filed a reply (Doc. No. 9 [“Reply”]). Appellee has also filed an
opposition to appellant’s motion to strike (Doc. No. 11 [“Mot. Str. Opp.”]). All motions
are fully briefed and ripe for resolution.
I. BACKGROUND
This is a bankruptcy appeal from an Order, entered March 19, 2014 by
United States Bankruptcy Judge Russ Kendig, granting appellee Christopher Paxos
summary dismissal of appellant Spirit SPE Portfolio 2007-1 LLC’s action in bankruptcy.
(Doc. No. 1 at 1 [“Notice”]; Doc. No. 1-1 [“Mem. Op”].) On August 13, 2012, appellant

filed an adversarial complaint, seeking a declaration that a judgment it holds against
appellee is nondischargable under 11 U.S.C. §§ 523(a)(2) and (4). It was appellant’s
position that the judgment was the “result of [appellee’s] fraud and should be excepted
from discharge.” (Mem. Op. at 5.)1 In a Memorandum Opinion accompanying the
aforementioned Order, the bankruptcy judge ruled that appellee was entitled to summary
dismissal of the adversarial complaint because appellant had failed to timely respond to
appellee’s request for admissions and the admissions were, therefore, deemed admitted.2
In so ruling, the bankruptcy court recounted in detail appellant’s six month history of
discovery delays and missed discovery deadlines. (Id. at 5-6.) Having failed to obtain
relief from the bankruptcy court, appellant filed the instant appeal on April 29, 2014. This
Court has jurisdiction to hear the appeal under 28 U.S.C. §§ 157(b)(1) and 158(a)(1).
On April 30, 2014, the Court issued an initial standing order, setting forth
dates and deadlines that would govern the appeal. (Doc. No. 4 “[Standing Order”].)
Specifically, the Court directed appellant to file its brief within 14 days (May 14, 2014),
and afforded appellee leave to file his brief within 14 days from the filing of appellant’s
brief. (Id. at 41-2.) Three days after the expiration of the deadline for filing its appellate
brief, on May 17, 2014 (a Saturday), appellant moved for an extension of time until May
31, 2014 (also a Saturday) to file its brief, citing counsel’s busy schedule and the

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All page number references are to the page identification number generated by the Court’s electronic
docketing system.
2

According to the bankruptcy court’s opinion, the admissions were served on August 7, 2013. When
appellant failed to timely respond, appellee moved for summary judgment. At a pretrial conference held on
November 6, 2013, the bankruptcy judge ordered appellant to respond to appellee’s request for admissions
by December 6, 2013, and appellee agreed to withdraw his summary judgment motion. Appellant did not
file its response until December 10, 2014, and only after appellee filed a renewed motion for summary
judgment. (Doc. No. 1-1 at 5.) The admissions were six months late.
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demands from counsel’s part-time position as an assistant law director for the City of
Rocky River, Ohio. (Mot. Ex. at 47.) The motion made no mention of the fact that it was
untimely filed, nor offered any reason for the delay in seeking relief from the Court’s
Standing Order.
On May 19, 2014, appellee moved to dismiss the present appeal for failure
to prosecute. In his motion, appellee noted that appellant had failed to submit an appellate
brief as required by the Court’s Standing Order and Fed. R. Bankr. P. 8009. Appellee also
requested that appellant’s untimely motion for an extension of time be denied. In a nondocument order, dated May 20, 2014, the Court granted appellant leave until June 3, 2014
to respond to appellee’s motion to dismiss.
Appellant did not file a response to the motion by June 3, 2014. Instead, at
11:55 PM on June 3, 2014, appellant filed its merits brief. (Doc. No. 7 [“App. Br.”].) The
merits brief was filed without leave and before the Court had an opportunity to rule on
the motion for an extension of time. Moreover, the brief was filed three days beyond the
May 31, 2014 date appellant had identified in its motion for an extension of time. (See
Mot. Ex.) In its brief, appellant did not take issue with the bankruptcy court’s recitation
of the many delays caused by appellant’s failure to timely prosecute its adversarial action,
and merely referred to the bankruptcy court’s grant of summary judgment as resting on a
“technical failure” by appellant to timely respond to the request for admissions. (App. Br.
at 63.)
At 12:01 AM on June 4, 2014, appellant filed its opposition to appellee’s
motion to dismiss. The totality of its argument in opposition was contained in a single
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sentence: “Plaintiff incorporates by reference the contents of its merits brief filed
simultaneously with this brief in opposition as Plaintiff’s basis for this Court’s overruling
the motion to dismiss.” (Opp. at 77.) On June 6, 2014, appellee filed his reply in support
of dismissal. The reply noted that the opposition brief was filed a day late, and requested
that the Court strike appellant’s reference in its brief to alleged unethical dealings by the
bankruptcy court. (Id. at 79.)
II. APPELLANT’S MOTION TO STRIKE
Before the Court can reach the merits of appellee’s dispositive motion, it
must address appellant’s motion to strike. By this motion, appellant seeks to strike
appellee’s suggestion that appellant’s opposition brief was untimely and the allegation
that appellant is attacking the “integrity and character of the bankruptcy judge.” (Mot.
Str. at 83.)
The Court has reviewed appellant’s merits brief, which is, at best, an
inarticulate string of rants directed at appellee, his attorneys, and the bankruptcy court. At
worst, the allegations against the bankruptcy court—allegations that the court pointedly
ignored appellee’s alleged fraud and discharged a fraudulent debt—could reasonably be
interpreted as casting aspersions upon the integrity of the bankruptcy court. Nonetheless,
neither appellant’s attacks upon the bankruptcy court, nor appellee’s characterization of
those attacks in his own reply brief, have any bearing on this Court’s resolution of
appellee’s motion to dismiss the appeal. This portion of appellant’s motion to strike is
denied as moot.

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As for the reference to the appellant’s opposition brief, the Court finds that
appellee correctly observed that the brief was untimely. Since 1996, this Court has
required attorneys to file documents with the Court electronically through its Case
Management/Electronic Cases Files (“CM/ECF”) system. Rule 6 of the Federal Rules of
Civil Procedure provides that, “[u]nless a different time is set by a statute, local rule, or
court order, the ‘last day’ [of a court deadline] ends: (A) for electronic filing, at midnight
in the court’s time zone[.]” Fed. R. Civ. P. 6(a)(4)(A). Similarly, the Court’s local rules
clearly warn that:
Filing documents electronically does not alter any filing deadlines. All
electronic transmissions of documents must be completed (i.e., received
completely by the Clerk’s Office) prior to midnight in order to be considered
timely filed that day. Although parties can file documents electronically 24
hours a day, attorneys and parties are strongly encouraged to file all
documents during normal working hours of the Clerk’s Office (8:00 a.m. to
4:45 p.m.) when assistance is available.
L.R. Appendix B(10) (emphasis added). According to both the federal civil rules and this
Court’s local rules, appellant’s opposition—filed at 12:01 on June 4, 2014—was late,
albeit one minute late. Appellant complains that its opposition brief was only late because
counsel chose to file the merits brief first, however, counsel clearly did not afford
sufficient time to ensure that the opposition brief would be timely. See Mittman v. Casey
(In re Casey), 329 B.R. 43, 46 (Bankr. S.D. Ohio 2005) (rejecting the argument that a
bankruptcy complaint was timely where the litigant began the electronic filing process
prior to midnight but the filing was not completed until after midnight); see also Zabivnik
v. Hannen (In re Hannen), 383 B.R. 683, 687 (Bankr. N.D. Ohio 2008) (rejecting
counsel’s excuse that a bankruptcy brief was late because of unfamiliarity with electronic
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docketing system). While appellant’s opposition brief was obviously not egregiously late,
the tardiness of the filing is indicative of a larger problem—appellant’s complete
indifference to the procedural rules governing bankruptcy and the overall judicial
process, which will be discussed more fully below. Finding no reason to strike any part of
appellee’s reply, however, appellant’s motion is denied.
III. APPELLEE’S MOTION TO DISMISS
Appellee seeks dismissal of the present bankruptcy appeal for failure to
prosecute. “Federal Rule of Bankruptcy Procedure 8001(a) grants the district court
authority to dismiss appeals for non-prosecution.” Sharwell v. Baumgart (In re Sharwell),
129 F.3d 1265, at *1 (6th Cir. Oct. 30, 1997) (table decision) (citation omitted). Rule
8009(a), in turn, provides, “Unless the district court or the bankruptcy appellate panel by
local rule or by order excuses the filing of the briefs or specifies different time limits,
[t]he appellant shall serve and file a brief within 14 days after entry of the appeal on the
docket pursuant to Rule 8007.” However, the Sixth Circuit “adheres to the admonition
that a late filing does not justify dismissal of the appeal absent a showing of bad faith,
negligence, or indifference.” Arnold v. G.E. Capital Auto Lease, Inc., 63 F. App’x 188,
189 (6th Cir. 2003) (quotation marks and citation omitted); Mitan v. Buscemi’s Int’l, Inc.
(In re Buscemi’s Int’l, Inc.), 64 F. App’x 910, 911 (6th Cir. 2003) (citing Third Nat’l
Bank v. Winner Corp. (In re Winner Corp.), 632 F.2d 658, 660-61 (6th Cir. 1980)).
The decision to dismiss a bankruptcy appeal as a sanction for failing to
timely comply with governing procedural rules is left to the discretion of the district
court. See Barclay v. U.S. Trustee, 106 F. App’x 293, 294 (6th Cir. 2004) (citation
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omitted); In re Buscemi’s Int’l, 64 F. App’x at 911. A district court abuses its discretion
only when it “applies the wrong legal standard, misapplies the correct legal standard, or
relies on clearly erroneous findings of fact.” First Tech. Safety Sys., Inc. v. Depinet, 11
F.3d 641, 647 (6th Cir. 1993) (citation omitted).
Courts have found the presence of bad faith, negligence, or indifference
where a litigant has demonstrated a “persistent neglect of or indifference toward the
procedural rules involved in a bankruptcy proceeding.” Kloian v. Simon (In re Kloian),
137 F. App’x 780, 783 (6th Cir. 2005) (quoting, with favor, the district court’s
justification for the dismissal of a bankruptcy appeal where the debtor had missed several
procedural deadlines); see, e.g., Creditors Servs. Corp. v. Cooley (In re Creditors Servs.
Corp.), 182 F.3d 916, at *2 (6th Cir. 1999) (table decision) (affirming dismissal of
bankruptcy appeal for untimely filings on “multiple occasions”); In re Sharwell, 129 F.3d
1265, at *1 (appellant’s “complete failure to file a designation of the record and statement
of the issues and his filing of his brief six months late showed at least negligence, if not
complete indifference”); Jusczak v. Charter One Bank, N.A., No. 1:04CV659, 2005 WL
1126744, at *2 (N.D. Ohio April 20, 2005) (dismissing bankruptcy appeal because
appellant had “not abided by at least two provisions” of the bankruptcy procedural rules).
The record reveals that appellant has missed at least two (and arguably
more) deadlines on appeal. As previously stated, appellant’s merits brief was untimely as
it was filed more than 14 days after the entry of the appeal and beyond the date set by the
Court for filing, and its request for additional time was filed after the deadline set by the
Court for filing the merits brief had passed. Moreover, it was filed without leave of Court,
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and before the Court could address the motion for an extension. Appellant’s opposition to
appellee’s motion to dismiss was also filed beyond the date set by the Court for a
response. Additionally, appellant’s merits brief was filed outside of the time appellant,
itself, had requested for leave. Considered in isolation, each infraction might not have
been sufficient to support the dismissal of this bankruptcy appeal. When considered
together, however, they demonstrate a clear pattern of neglect and indifference to the
administration of this bankruptcy appeal. Appellant’s cavalier treatment of this Court’s
deadlines is especially troubling given the fact that its bankruptcy complaint was
dismissed, in the first instance, because appellant failed to honor its obligation to meet
discovery deadlines.
Appellant’s neglect and/or indifference is even more egregious when its
record before the bankruptcy court is considered, and this consideration only serves to
reinforce the Court’s conclusion that appellant is entirely indifferent to its litigation
obligations. See In re Kloian, 137 F. App’x at 783 (approving of the district court’s
consideration of debtor’s record before the bankruptcy court of “persistently neglect[ing]
to produce records and to adequately prepare for and participate in hearings” in
dismissing appeal); see generally Halbert v. Yousif (In re Yousif), 201 F.3d 774, 778 (6th
Cir. 2000) (“Because the bankruptcy court serves as an ‘adjunct’ to the district court, [the
Sixth Circuit] view[s] all the proceedings in this action, whether in the Bankruptcy Court
or the District Court as one proceeding in bankruptcy.”) (quotation marks and citation
omitted). The bankruptcy judge detailed multiple instances when appellant failed to
comply with discovery deadlines or failed to file timely responses to motions. Appellant
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did not take issue with these factual findings, merely referring to its many lapses as
“technical” violations of the bankruptcy rules and the bankruptcy judge’s orders. Given
this attitude, it is, therefore, not surprising that appellant has continued its practice of
neglect before this Court.
Under these circumstances, the Court finds that this appeal is subject to
dismissal for lack of prosecution in accordance with the Bankruptcy Rules.
Proceeding to the merits, the Court readily concludes that the bankruptcy
court’s factual finding that appellant had failed to timely respond to appellee’s request for
admissions was not clearly erroneous. Likewise, a de novo review of the record reveals
that the bankruptcy court’s legal conclusion that the delay had rendered the admissions
admitted entitling appellee to summary judgment was not reached in error. See generally
In re Dow Corning Corp., 255 B.R. 445, 463-64 (E.D. Mich. 2000) (A bankruptcy
court’s findings of fact are reviewed under a clearly erroneous standard, while its
conclusions of law are reviewed de novo.).
Appellant offers no excuse for its failure to timely answer the request for
admissions. Instead, appellant’s attack upon the bankruptcy court’s summary dismissal
rests exclusively upon the legal principle that there is a preference in the law in favor of
resolving matters on the merits. (App. Br. at 71 [collecting cases].) The Court agrees that
our judicial system reflects “a strong presumption in favor of adjudication on the
merits[.]” Smith v. Bankr. Estate of Veronica Nelson (In re Nelson), No. 05-60062, 2005
WL 2033537, at *2 (E.D. Mich. Aug. 22, 2005) (quotation marks and citation omitted).
However, the general public policy favoring adjudication on the merits cannot serve to
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excuse a party’s failure to adhere to the rules of court, nor can it rescue a litigant from the
consequences of its actions or inactions. See Lyons v. Colvin, No. SACV 12-125-AGR,
2013 WL 1164783, at *2 (C.D. Cal. Mar. 20, 2013).
For example, and relevant to the present appeal, “[i]t is well established
that a failure to respond to a request to admit will permit a court to enter summary
judgment if the facts deemed admitted are dispositive.” Lucas v. Higher Educ. Assistance
Found. (In re Lucas), 124 B.R. 57, 58 (Bankr. N.D. Ohio 1991) (citations omitted). Of
course, “a court is not required to do so. It is within the court’s discretion to allow
untimely answers to requests for admissions, when such an amendment will not prejudice
the other party.” Id. (citations omitted, emphasis added). Here, the bankruptcy court
generously agreed to grant appellant leave to submit its answer to the requests for
admissions, even though those answers would have been untimely. It was only after
appellant missed the revised deadline that the bankruptcy court deemed the facts
admitted. Under these circumstances, the bankruptcy court did not abuse its discretion
when it concluded under Fed. R. Civ. P. 36 that appellee established, by way of admitted
answers, that he did not “possess the requisite intent for the underlying causes of action
seeking nondischarageability.” (Mem. Op. at 11.) While the Court need not reach this
issue, the fact that appellee was entitled to summary judgment represents an alternative
basis for the Court to enter judgment on appeal in favor of appellee.

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IV. CONCLUSION
For all of the foregoing reasons, the Court hereby grants appellee’s motion
to dismiss and dismisses appellant’s appeal with prejudice.
IT IS SO ORDERED.
Dated: October 9, 2014
HONORABLE SARA LIOI
UNITED STATES DISTRICT JUDGE

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