In Re: Bradley C. Reifler

Background

Marianne T. O’Toole, acting as Chapter 7 trustee of Bradley C. Reifler’s estate, brought a seven-count adversary proceeding against Jacqueline Vesnic. The trustee alleged that Reifler had fraudulently transferred $129,500 to Vesnic during the two years before Reifler filed for bankruptcy. Vesnic appeared through counsel and filed an answer.

The bankruptcy court entered scheduling and discovery orders requiring Vesnic to provide initial disclosures, respond to document requests and interrogatories, produce responsive materials, and attend a deposition. Vesnic’s disclosures and discovery responses were late and, according to the record described by the district court, incomplete. The record included disputes about bank statements, communications through WhatsApp, information connected to a university email account, and contact information for Vesnic’s parents.

On October 31, 2019, the bankruptcy court ordered Vesnic to produce all responsive documents, provide complete and signed discovery responses, give information about documents that had been destroyed or deleted, pay the trustee’s reasonable attorney fees, and attend a deposition. The order warned that failure to comply could result in striking her answer or entering default judgment. The bankruptcy court later ordered Vesnic to pay $2,300.50 in attorney fees.

Vesnic did not pay the fee award, complete the required discovery, schedule or attend a deposition, or otherwise comply with the orders. Her counsel told the bankruptcy court that Vesnic was on a months-long backpacking trip through Mexico and could not be reached. After a hearing, the bankruptcy court struck Vesnic’s answer and entered default judgment against her for $129,500. Vesnic appealed to the district court. The district court allowed the appeal to proceed on the original record even though Vesnic had not filed the required appendix.

Standard of Review and Analysis

The district court reviewed the bankruptcy court’s sanctions decision for abuse of discretion. A court abuses that discretion when it applies the wrong legal rule, makes a clearly erroneous factual finding, or reaches a decision outside the range of permissible choices.

Under Federal Rule of Civil Procedure 37, a court may enter default judgment against a party who fails to comply with a discovery order. The district court identified relevant considerations, including whether the noncompliance was willful, whether lesser sanctions would work, how long the noncompliance lasted, and whether the party was warned about the consequences.

The district court concluded that the record supported the bankruptcy court’s concern about Vesnic’s conduct. Vesnic had received repeated warnings, failed to provide discovery on time, did not adequately supplement her responses, did not comply with the October 31 Discovery Order, did not pay the attorney-fee award, and did not appear for a deposition. The district court also noted that a lesser sanction—the fee award—had not secured compliance.

But the district court held that the bankruptcy court had not adequately explained why default judgment was justified. The December 17, 2019 hearing contained only a short exchange about Vesnic’s noncompliance and counsel’s inability to reach her. The bankruptcy court then stated that the motion was unopposed and granted, struck the answer, and ordered default judgment for $129,500. The written sanctions order likewise contained only a conclusory statement that Vesnic had willfully failed to comply.

The district court stated that more analysis was particularly important because the record did not clearly establish how much of the discovery failure was caused by Vesnic, her attorney, or both. It noted that, if the failure resulted from the lawyer’s disregard of duties to the client, a less severe sanction directed at the lawyer could be appropriate.

Disposition

The district court VACATED the bankruptcy court’s December 26 Sanctions Order striking Vesnic’s answer and entering default judgment. It remanded the matter to the bankruptcy court to provide detailed factual findings and legal analysis sufficient to support any entry of default judgment. The district court directed the clerk to close the appeal.