Striking the Answer and Entering Default: A Sanction for Blowing Off Mediation

By: Donald L. Swanson

The case is Trujillo v. Tak (In re Tak), Case No. 18-ap-01217 (Bankry. C.D. Cal.).

The Case

Celia Trujillo sues Debtor in Superior Court of the State of California, County of Los Angeles, at Case No. BC672613, for sexual harassment and discrimination. In response, Debtor files Chapter 7 bankruptcy.

Then, Celia Trujillo files a Complaint in Debtor’s bankruptcy, objecting to the discharge of her claim.

Soap Opera Allegations in Complaint

Ms. Trujillo’s Complaint alleges:

• Debtor employed her as a part time server at his restaurant.
• At 9:30 p.m., after closed for the night, Truijillo’s supervisor, a 50 year o1d male, accused her of being “short $11.00.” He asked for kisses and threatened to take the $11.00 “out of her paycheck,” if she declined. Then, the supervisor made sexual advances. She ran away. He chased and assaulted her.
• Then, she pushed him off, ran to an area covered by security cameras, and said he was going to get caught by the cameras. He looked at the cameras, left her alone and went into the back office. She grabbed her personal belongings, went to her car, and began to cry.
• Then, she wrote a letter to Human Resources and placed it on Debtor’s desk, describing what happened. She received no response.
• Later, Debtor watched the video footage with Trujillo’s mother and a co-worker. The video showed 8-10 minutes of the supervisor chasing, grabbing, molesting, pushing, and sexually assaulting her.
• Debtor forced the supervisor to flee to his native country to escape the authorities and liability—Debtor bought him an airline ticket for that purpose
• Then, after receiving written notice to preserve all security videos regarding the matter, Debtor closed his restaurant and filed the bankruptcy to escape liability.

Debtor’s Answer to Complaint

Debtor files his “Answer” to Ms. Trujillo’s Complaint, denying the essential allegations and asserting affirmative defenses, such as lack of knowledge, reasonable conduct, lack of causation and assumption of risk.

Local Mediation Rules

The Central California Bankruptcy Court has a “Mediation Program for Bankruptcy Cases and Adversary Proceedings” because:

“the volume of cases, contested matters and adversary proceedings” has “placed substantial burdens” on the Court and parties before it, which create delays in the “resolution of disputed matters”; and

the mediation program “offers an opportunity for parties to settle legal disputes promptly, less expensively, and to their mutual satisfaction.”

Failure to Engage in Mediation

The Bankruptcy Court refers the Trujillo v. Tak case to mediation under its Mediation Program. But Debtor refuses to cooperate in that referral and refuses to sign the mediation forms. Such actions prevent Trujillo from complying with the mediation referral as well.

So, the Bankruptcy Court orders Debtor to “show cause” why sanctions should not be imposed against him for failure to cooperate in the mediation process. The Bankruptcy Court also warns Debtor that, since mediation “is a crucial component of the adjudicative process,” a “disregard” of mediation requirements qualifies as “bad-faith conduct” and “is cause” for imposing the sanction of “striking Defendant’s Answer and entering his default.”

Sanctions Order

Debtor does not respond to the “show cause’ order. So, the Bankruptcy Court imposes sanctions against Debtor in the form of “striking” his answer to Plaintiff’s Complaint and “entering his default” in the case.

Legal Standard

In deciding whether to “impose case dispositive sanctions,” a Court must determine whether noncompliance involves “willfulness, fault, or bad faith” and whether a “lesser” sanction might be appropriate.” In doing so, the Court is to consider these five factors established by the Ninth Circuit Court of Appeals:

1. the public’s interest in expeditious resolution of litigation;
2. the court’s need to manage its docket;
3. the risk of prejudice to the party who has litigated diligently;
4. the public policy favoring the disposition of cases on their merits; and
5. the availability of less drastic sanctions, whether the court has considered and attempted those, and whether the recalcitrant party has been warned.

–Applying the Five Factors

Here’s how the Bankruptcy Court applies the five factors in Trujillo v. Tak and concludes that each factor “favors the imposition” of case-terminating sanctions.

1. Public’s Interest. Mediation frequently produces a settlement or narrows the issues in dispute. By preventing mediation from taking place, Defendant has impeded the expeditious resolution of this action. As the Ninth Circuit has explained, “[t]he public’s interest in expeditious resolution of litigation always favors” the imposition of sanctions.

2. Court’s Need to Manage its Docket. Courts have “power to manage their dockets without being subject to the endless vexatious noncompliance of litigants.” Defendant’s failure to comply “placed additional burden upon the Court’s docket.”

3. Risk of Prejudice to the Diligent Party. A non-compliant party has no right to impair a diligent party’s “ability to go to trial” or to interfere with “the rightful decisions of the case.” Debtor’s failure to attend mediation has impaired and interfered with such matters and “prejudiced Plaintiff.”

4. Public Policy Favoring Disposition of Cases on Merits. While this policy “strongly counsels against dismissal,” non-compliant actions that stall or unreasonably delay the progression of a case are subject to sanction. Defendant failed to respond to or communicate with Plaintiff on mediation and failed to respond to the Court’s show cause order.

5. Availability of Less Drastic Sanctions. Less drastic sanctions are not an adequate remedy because of Debtor’s “bad faith”: the Court warned Debtor about case-dispositive sanctions, yet Debtor did not respond, and Debtor failed to cooperate or communicate with Plaintiff on mediation and on other procedural matters.

–Further Rulings

Thereafter, the Bankruptcy Court makes the following additional rulings, flowing from the Answer-striking sanction imposed:

• Defendant constructively discharged Plaintiff;
• Such conduct is “willful and malicious” within the meaning of 11 U.S.C. § 523(a)(6) [Fn. 1], which prevents such liability from being discharged; and
• Plaintiff shall file and serve a declaration showing the damages she suffered as a result of the constructive discharge.”

Conclusion

Striking an answer and entering a default is a harsh remedy. But the Bankruptcy Court imposed this very sanction in the Trujillo v. Tak cased, based upon a reasoned application of the applicable legal standard.
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Footnote 1. 11 U.S.C. § 523(a)(6) provides: “A discharge . . . does not discharge an individual debtor from any debt . . . (6) for willful and malicious injury by the debtor to another entity or to the property of another entity.”

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