Free Reply to Response to Motion - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13

Curt W. Clausen, Esq. ­ #019709 LUCIA STARK WILLIAMSON LLP 2700 North Central Avenue, Suite 1400 Phoenix, Arizona 85004 Telephone: (602) 285-4400 Facsimile: (602) 285-4483 Firm E-mail: [email protected] Christopher J. Berry, Esq. ­ #015385 WHITTEN BERRY, PLLC 101 North First Avenue, Suite 1800 Phoenix, Arizona 85003 Telephone: (602) 462-1141 Facsimile: (602) 462-1151 E-mail: [email protected] Special Counsel for Trustee, Robert Patrick Abele
UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

ROBERT PATRICK ABELE, Trustee for the Bankruptcy Estate of Wavo Corporation, Plaintiff,

No. CIV 03-1929-PHX-SRB PLAINTIFF'S REPLY IN SUPPORT OF MOTION FOR RECONSIDERATION OF DISMISSAL AS SANCTION

14 vs. 15 16 17 18 19 20 21 22 23 24 25 26 DAVID E. DEEDS and STACEY A. DEEDS, husband and wife; MICHAEL J. COFFIN and TONI M. COFFIN, husband and wife; KENNETH D. SWENSON and SHARON C. SWENSON, husband and wife; THOMAS P. HULL and SANDRA M. HULL, husband and wife; PLYMOUTH DEWITT, L.L.C, a Nevada corporation, Defendants.

Not surprisingly, Defendants argue that each of the factors to be considered by this Court favor dismissal as the only sanction that should be imposed. At first blush,

Defendants' analysis of facts and case law appears to support its position; however, as one peels back each layer, it becomes clear that courts are reluctant to impose such a harsh sanction under similar circumstances. In addition to the factors to be considered,

Defendants are hyper-critical of Plaintiff's failure to suggest possible sanctions that would
3043

Case 2:03-cv-01929-SRB

-1Document 33 Filed 03/08/2006

Page 1 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

be available for this Court's consideration. According to Defendants, Plaintiff having given deference to this Court's experience and discretion is another factor that should be considered against Plaintiff and in support of dismissal as a sanction. Out of an abundance of caution, Plaintiff will demonstrate that the facts and case law warrant consideration of a lesser sanction and, in addition, propose some alternative sanctions for this Court's consideration. The Ninth Circuit has held that because "`[d]ismissal is so harsh a penalty it should be imposed as a sanction only in extreme circumstances.'" Dahl v. City of Huntington Beach, 84 F.3d 363, 366 (9th Cir. 1996) (quoting Thompson v. Housing Auth. of Los Angeles, 782 F.2d 829, 831 (9th Cir. 1986)). When considering dismissal as a possible sanction under Rule 41(b), a court must weigh various factors, however, "the key factors are prejudice and availability of lesser sanctions." Wanderer v. Johnston, 910 F.2d 652, 656 (9th Cir. 1990); Hernandez v. City of El Monte, 138 F.3d 393, 399 (9th Cir. 1998) (cases involving sua sponte dismissal as a sanction "merit special focus on considerations" relating to the availability of lesser sanctions). Thus, our analysis begins with these two prongs. 1. Prejudice

It is well recognized that an unreasonable delay may create a rebuttable presumption of prejudice; however, "whether actual prejudice exists may be an important factor in deciding whether a given delay is `unreasonable.'" Citizens Utilities Co. v. AT&T, 595 F.2d 1171 (9th Cir. 1979). When considered against the public policy favoring adjudication of a case on its merits, the "pertinent question for the district court, then, is not simply whether there has been any [delay or prejudice], but rather whether there has been sufficient delay or prejudice to justify a dismissal of the plaintiff's case." Nealey v. Transportacion Maritima Mexicana, S.A., 662 F.2d 1275, 1280 (9th Cir. 1980).

3043

Case 2:03-cv-01929-SRB

-2Document 33 Filed 03/08/2006

Page 2 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Recognizing that "only unreasonableness will support a dismissal for lack of prosecution," the Nealey Court stated Even where a plaintiff has failed to do what he might have done earlier, he may have an explanation that excuses or justifies his failure. It is at this point that the extent of prejudice to the defendant, if any, becomes important. As Judge Friendly has explained in the analogous context of laches, "A weak excuse may suffice if there has been no prejudice; an exceedingly good one might still do even when there has been some." Thus, delay alone should not be deemed to create a "`presumption of prejudice,' save in the sense that if the plaintiff proffers no pleading or presents no proof on the issue of reasonableness, the defendant wins." Id. (Internal citations omitted; emphasis added). Here, Plaintiff's delay was not intentional so as to gain an advantage over Defendants. Plaintiff acknowledges the failures of allowing the scheduling deadlines to pass without requesting an extension, or timely informing this Court that the deadlines had lapsed and Tony's illness and untimely death necessitated the Trustee's search for new counsel. As such, sanctions are warranted; however, dismissal is not. Moreover, Plaintiff does not solely bear fault as Defendants willfully delayed discovery in as much as they never followed through on their numerous verbal intentions to review the thousands of pages of documents in Plaintiff's possession before depositions would occur. Moreover, as correspondence indicates, Defendants agreed that the parties should stipulate to an extension of the discovery deadlines. demonstration of "actual prejudice" that bears scrutiny. Defendants claim the following prejudice: "Plaintiff has no way of knowing Thus, it is Defendants'

whether witnesses are available or not . . . [and that] undersigned counsel has not spoken with some Defendants for several months, and does not know their current, physical, whereabouts"; "Defendants' memories are as susceptible to fading as any other potential witness' and, in fact, Defendants' memories have undoubtedly faded over the past five (5) years. The Defendants' ability to defend themselves . . . has been highly jeopardized and prejudiced by Plaintiff's unexcused and unreasonable delay." [See Response, p. 9, 23-27;
3043

Case 2:03-cv-01929-SRB

-3Document 33 Filed 03/08/2006

Page 3 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

emphasis added].

In short, defense counsel may not know the presence of some

Defendants who were served with the Complaint and, certain unidentified Defendants may not recall the facts as clearly. This "prejudice" should be considered against defense counsel's statement made on the preceding page: "as discussed in Defendants' response regarding the Order to Show Cause, there was minimal discovery to be done by Defendants in this case, as the primary witnesses are the Defendants. Accordingly, the Defendants did not necessarily need to be active in the case or move the case along." [Emphasis added]. In other words, despite being served a Complaint, it is the Plaintiff who bears the burden of keeping track of each Defendant's whereabouts and preserving their testimony. Obviously such claims are nonsensical. Nonetheless, these unsupported allegations

illuminate a more important point of consideration ­ that Plaintiff's delay did not cause the alleged prejudice. In Nealey, the court held, as follows: Prejudice itself usually takes two forms ­ loss of evidence and loss of memory by a witness. In every case of delay, a district court in the exercise of its discretion should consider whether such losses [of evidence and memory] have occurred and if so, whether they are significant. Not every loss, and particularly not every loss of memory, will prejudice the defense of a case. The evidentiary doctrines of "past recollection refreshed" and "present recollection recorded" exemplify how insignificant a loss of memory can be. The irretrievable loss of evidence may of course be more serious. Fairness dictates, however, that a plaintiff not be deprived of his cause of action if the missing evidence would have been lost even absent delay. Rather, the loss must in some way be causally related to the plaintiff's conduct. Id. at 1281. Here, Defendants have not supported their assertions that memories have faded; nor have they supported whether such memory loss can be refreshed by the thousands of pages of documents in Plaintiff's possession or by prior deposition testimony. Ultimately,

Plaintiff bears the burden of proof at trial. In cases such as this, where the Trustee is
3043

Case 2:03-cv-01929-SRB

-4Document 33 Filed 03/08/2006

Page 4 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

asserting the claims against the directors and officers of an insolvent corporation, the burden is already difficult as those with the most personal knowledge of the events are often named as defendants. Thus, any claimed "loss of memory" is just as great of a risk to the Trustee, who bears the burden of proof at trial, that the lost information would have been favorable. To the extent that this memory would have been favorable to the defense of this case, Defendants have been on notice of the claims against them. The Defendants were deposed in the bankruptcy case about many of the circumstances underlying this lawsuit, and with full knowledge that WAVO's main creditor was attempting to prove that the Defendants improperly transferred to themselves the assets of this Company prior to its bankruptcy. The Defendants have undoubtedly worked with their counsel to build their factual and legal defenses to the well-known and much analyzed circumstances underlying the lawsuit. Their positions are likely as known today as they were when the lawsuit was filed. More importantly, even if this prejudice does exist, it was not caused by Plaintiff's delay. 2. Lesser Sanctions

Defendants criticize Plaintiff's decision not to suggest any available lesser sanction to this Court. The authority and discretion vested to this Court is well known and

respected. Indeed, the Court's power includes imposing no sanction at all to dismissing Plaintiff's case, and every other possible sanction along the continuum. For instance, possible sanctions could include the admonishment already received by the Court, a reprimand, an abbreviated scheduling order, or monetary sanctions. It is more difficult to recommend a sanction that fits the crime when the Trustee's counsel, Lucia Stark Williamson ("LSW") will also need to withdraw and "saddle" substituting counsel, Shughart Thomson & Kilroy ("STK"), with a proposed sanction that is too limiting, i.e., an abbreviated scheduling order. Nonetheless, if such alternative sanction were the only sanction available, LSW will offer its assistance to STK and the
3043

Case 2:03-cv-01929-SRB

-5Document 33 Filed 03/08/2006

Page 5 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Trustee (free of charge) in meeting any discovery deadlines.1 In the end, if the purpose of sanction is calculated to insure future compliance with discovery orders, it has already been achieved. If, however, it is to be punitive, we ask that such a sanction be crafted that would allow the case to proceed on its merits. 3. Disposition of the Case On Its Merits

It is universally accepted that public policy favors disposition on the merits. Defendants contend that, although a court evaluating this factor "should not closely scrutinize the merits of an action[,]" Plaintiff should specify "why it is allegedly important that this action be resolved on its merits." [Response, p. 10] Further, Defendants suggest that because Plaintiff has failed to prosecute this action in accordance with the discovery schedule, he "cannot now attempt to invoke public policy to have his claims heard on their alleged merits." There is no case that supports such a proposition. Indeed, it is at that point in which a "court's exercise of discretion in [ordering dismissal as a sanction for failure to prosecute] is cabined by the requirement that `it weigh . . . the relevant factors.'" Nealey at 1278-79 (ellipses in original; quoting Anderson v. Air West, Inc., 542 F.2d 522, 524 (9th Cir. 1976)). Among the many reasons supporting adjudication on the merits are the public policy favoring recovery for Wavo's creditors, holding Defendants accountable for their misconduct, and deterring other directors of insolvent corporations from ignoring their fiduciary obligations to creditors. 4. Expeditious Resolution of Litigation

In his Motion for Reconsideration, Plaintiff accepted, without re-arguing, this Court's comment concerning the mishandling of the prosecution of this case. Defendants are critical of the fact that Plaintiff does not "re-argue that issue" and conclude that because
Christopher Berry will continue to work on this matter with Mr. Harper until the case is fully transitioned to Shughart Thompson & Kilroy, or until its conclusion if Mr. Harper wants to continue that association.
3043
1

Case 2:03-cv-01929-SRB

-6Document 33 Filed 03/08/2006

Page 6 of 8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

"Plaintiff did not comply with his obligation to move this case towards a resolution at a reasonable pace" that this factor also "heavily" favors dismissal. In other words, according to Defendants' logic, the mere fact that Plaintiff failed to prosecute this case is, by itself, conclusive of several factors being determined in favor of dismissal. Plaintiff will not re-argue what was stated in his response to the order to show cause. The Court's order makes clear its understanding of this motion and the reasons for its conclusions. That the trustee is not repeatedly re-arguing the matter to the Court should not be repetitiously used by Defendants as support for each factor favoring dismissal. 5. The Court's Need to Manage Its Docket

This factor is not discussed in Defendants' Response, perhaps because Plaintiff has, again, acknowledged that his failure to prosecute has interfered with this Court's ability to manage its docket. CONCLUSION Based upon the foregoing, Plaintiff requests that this Court reconsider its order of dismissal as a sanction. RESPECTFULLY SUBMITTED this 8th day of March, 2006. WHITTEN BERRY, PLLC By s/ Christopher J. Berry Christopher J. Berry 101 North First Avenue, Suite 1800 Phoenix, Arizona 85003 LUCIA STARK WILLIAMSON LLP By s/ Curt W. Clausen Curt W. Clausen 2700 N. Central Ave., Suite 1400 Phoenix, Arizona 85004 Attorneys for Trustee, Robert Patrick Abele
3043

Case 2:03-cv-01929-SRB

-7Document 33 Filed 03/08/2006

Page 7 of 8

1 2 3 4 5 6 7 8 9 10

ORIGINAL E-FILED AND COPY hand delivered this 8th day of March, 2006, to: The Honorable Susan R. Bolton UNITED STATES DISTRICT COURT 401 W. Washington Street Phoenix, AZ 85003 COPY of the foregoing e-mailed this 8th day of March, 2006, to: Philip R. Rudd, Esq. KUTAK ROCK, LLP 8601 N. Scottsdale Rd., Suite 300 Scottsdale, AZ 85253 Attorneys for Defendants By s/ Nicole A. Nimtz

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
3043

Case 2:03-cv-01929-SRB

-8Document 33 Filed 03/08/2006

Page 8 of 8