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LeCompte v. Manekin Construction, LLC

United States District Court, D. Maryland

April 7, 2017

DANA S. LECOMPTE, Appellant,
v.
MANEKIN CONSTRUCTION, LLC, Appellee. Bankruptcy No. JFS-15-18820

          MEMORANDUM OPINION

          RICHARD D. BENNETT, UNITED STATES DISTRICT JUDGE

         Debtor Dana S. LeCompte (“Appellant” or “LeCompte”) appeals from United States Bankruptcy Judge James F. Schneider's August 25, 2016 Order Granting the Motion of Manekin Construction, LLC (“Appellee” or “Manekin”) for Sanctions and Entering Default Judgment under Rule 37(b)[1] of the Federal Rules of Civil Procedure against LeCompte based on his failure to respond to discovery requests. (ECF No. 3-34.) The Default Judgment was entered following a hearing on Manekin's Motion for Sanctions. Pursuant to this Judgment, Appellant's debt in the amount of $1, 033, 031.77 is not dischargeable under Section 523(a)(2)(A) and (a)(6) of the Bankruptcy Code. 11 U.S.C. § 523(a).

         This Court properly exercises jurisdiction over this matter pursuant to 28 U.S.C. § 158(a), as Appellant's appeal arises from the Final Order entered by the United States Bankruptcy Court for the District of Maryland. (ECF No. 3-34.) The parties' submissions have been reviewed, and this Court conducted a hearing and heard oral argument from counsel on April 6, 2017. Reviewing de novo Judge Schneider's legal conclusions, this Court holds that he correctly determined as a matter of law that Lecompte's failure to timely respond to appellee's written discovery requests constituted a violation of an Order of the Court. Furthermore, this Court holds that Lecompte had sufficient warning to comply with earlier warnings of the Court, following a prior entry of default. Accordingly, for the reasons that follow, the Bankruptcy Court's August 25, 2016 Order (ECF No. 3-34) entering a Default Judgment against Lecompte is AFFIRMED.

         BACKGROUND

         On August 21, 2014, Manekin filed a Complaint against LeCompte and other defendants in the Circuit Court for Howard County, Maryland (“Circuit Court”), seeking damages based on LeCompte's alleged fraud and breach of contract related to a construction project. (Appellant's Br., ECF No. 6 at 10.) LeCompte repeatedly failed to respond to the Complaint, and the state court granted Manekin's Motion for Default Judgment against LeCompte, entering judgment against him in the amount of $1, 033, 031.77. (Id.)

         On June 22, 2015, following entry of the state court default judgment, LeCompte filed a petition under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701, et seq., in the United States Bankruptcy Court for the District of Maryland. (ECF No. 6 at 10.) The Meeting of Creditors was held pursuant to 11 U.S.C. § 341(a). (ECF No. 3-39.) On September 25, 2015, Manekin filed a Complaint in the Bankruptcy Court to Determine Dischargeability of Debt (“Non-Dischargeability Complaint”), seeking a determination that the debt owed to Manekin was not dischargeable by LeCompte in the bankruptcy proceeding. (ECF No. 2-1.) Manekin sought non-dischargeability on the basis that the debt arose from “false pretenses, a false representation, or actual fraud, ” under Section 523(a)(6) of the Bankruptcy Code. (ECF No. 2-1 at 14.) LeCompte failed to respond to the Non-Dischargeability Complaint, just as he had failed to respond to the Howard County state action. On November 6, 2015, upon Manekin's request, the clerk entered LeCompte's default, pursuant to Rule 55(a) of the Federal Rules of Civil Procedure.[2] (ECF No. 3-7.) LeCompte failed to move timely to vacate the Entry of Default or otherwise respond. (Appellant's Br., ECF No. 7 at 4.) Accordingly, on November 9, 2015, Manekin filed a Motion for Default Judgment. The following day, on November 10, 2015, LeCompte filed an Answer to the Non-Dischargeability Complaint (ECF No. 2-2) and a Motion to Vacate the Entry of Default. (ECF No. 3-14.)

         On December 16, 2015, the Bankruptcy Court held a hearing on Manekin's Motion for Default Judgment. (ECF No. 3-13.) At the hearing, the Bankruptcy Court vacated the Entry of Default and denied Manekin's Motion for Default Judgment. (ECF No. 3-29.) The Court issued an initial Scheduling Order (ECF No. 2-3), which it subsequently modified by Order dated May 24, 2016. (ECF No. 2-7.)

         The parties undertook discovery, but LeCompte failed to timely respond to Manekin's Requests for Document Production and Interrogatories.[3] (ECF No. 6 at 4.) Subsequently, Manekin filed a Motion for Sanctions on June 14, 2016. (ECF No. 2-8.) LeCompte then responded to Manekin's prior discovery requests, two weeks after they were due. (ECF No. 6 at 4.)

         On August 17, 2016, the Bankruptcy Court held a hearing on Manekin's Motion for Sanctions. (ECF No. 6 at 5.) At the hearing, both parties were present and represented by counsel. On August 25, 2016, the Bankruptcy Court found that good cause existed to grant the Motion for Sanctions and sanctioned LeCompte by entering a Default Judgment against him pursuant to Rule 37(b).[4] (ECF No. 3-34.) On September 8, 2016, LeCompte timely noted his appeal of the Bankruptcy Court's Final Order granting default sanctions under Rule 37(b). (ECF No. 2-1.)

         The Bankruptcy Court expressly relied on Rule 7037 as its authority for imposing sanctions and on the record cited several reasons for imposing sanctions on LeCompte. First, the Court noted that LeCompte never filed any response in the Circuit Court for Howard County, which resulted in a “million-dollar judgment” against him on the basis of fraud. (Hr'g Tr. at p. 20, ECF No. 4.) Additionally, the Bankruptcy Court emphasized that as a result of the state court judgment, LeCompte was on notice of the risks of continued failure to respond to judicial process. (Id.) Then, when LeCompte failed to timely answer Manekin's Complaint in the Bankruptcy Court, the clerk entered LeCompte's default. (ECF No. 3-3.) Ultimately, the Bankruptcy Court granted Manekin's Motion for Sanctions based on LeCompte's disregard of the Scheduling Order issued by the Court, evidenced by his failure to timely respond to Manekin's discovery requests for document production and interrogatories. (Id. at 19-20.)

         In his pending appeal, LeCompte argues that “the court erred in entering default judgment against the Appellant Mr. LeCompte as a sanction under Rule 37 for untimely responses to the plaintiff's discovery requests.” (ECF No. 6 at 10.)

         On March 23, 2017, nearly three months after this matter became ripe for this Court's resolution, new counsel for appellant, Mr. Jay B. Shuster, Esq., entered his appearance and filed a request for oral argument on this appeal. (ECF No. 9.) The request was granted, and this Court conducted a hearing on this appeal on April 6, 2017. (ECF No. 11.)

         STANDARD OF REVIEW

         This appeal is brought pursuant to Rule 8001 of the Federal Rules of Bankruptcy Procedure, which permits an appeal as of right from a judgment, order, or decree of a bankruptcy judge to a district court as authorized by 28 U.S.C. § 158(a)(1). On appeal from the Bankruptcy Court, this Court acts as an appellate court and reviews the Bankruptcy Court's findings of fact for clear error and conclusions of law de novo. In re Merry-Go-Round Enters., Inc., 400 F.3d 219, 224 (4th Cir. 2005); Kielisch v. Educational Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir. 2001). A factual finding is clearly erroneous “when although there is evidence to support it, the reviewing court on the entire evidence is left with a firm and definite conviction that a mistake has been committed.” United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948); see also In re Rood, 482 B.R. 132, 141 (D. Md. 2012), aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Rood, 532 F. App'x 370 (4th Cir. 2013), and aff'd sub nom. S. Mgmt. Corp. Ret. Trust v. Jewell, 533 F. App'x 228 (4th Cir. 2013).

         Bankruptcy Rule 7037 incorporates Rule 37(b) of the Federal Rules of Civil Procedure, which provides, in pertinent part, that:

[i]f a party . . . fails to obey an order to provide or permit discovery . . . the court where the action is pending may issue further just orders. They may include . . . rendering a default judgment against the disobedient party.

Fed. R. Civ. P. 37(b)(2)(A)(vi). Relevant to this appeal, “the power to impose sanctions under Rule 37(b) is discretionary with the trial court and its exercise will be disturbed on appeal only for an abuse of discretion” or for failure by the trial court to clearly state its reasons for imposing a particular sanction. National Hockey League v. Metropolitan Hockey Club,Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976); Wilson v. Volkswagen ofAm., Inc., 561 F.2d 494, 505 (4th Cir. 1977). “A court abuses its discretion when its conclusion is ‘guided by erroneous legal principles' or ‘rests upon a clearly erroneous factual finding.'” Blue Cross Blue Shield of North Carolina v. Jemsek Clinic, P.A. (In re: Jemsek Clinic, P.A.), 2017 WL 838640, at *9 (4th Cir. Mar. 3, 2017) (quoting Westberry v. Gislaved Gummi AB, 178 F.3d 257, 261 (4th Cir. 1999)). “[B]ankruptcy courts have the inherent power ...


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