                                                                  FILED
                                                                   DEC 03 2015
 1                         NOT FOR PUBLICATION
                                                             SUSAN M. SPRAUL, CLERK
 2                                                               U.S. BKCY. APP. PANEL
                                                                 OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No.   EC-14-1204-JuFD
                                   )
 6   RONALD DAVID SUTTON and       )        Bk. No.   12-35623
     KIMBERLY ANN SUTTON,          )
 7                                 )        Adv. No. 12-02590
                    Debtors.       )
 8   ______________________________)
                                   )
 9   ANDREW KOSTECKI; ALLOY STEEL )
     NORTH AMERICA, INC.,          )
10                                 )
                    Appellants,    )
11                                 )
     v.                            )        M E M O R A N D U M*
12                                 )
     RONALD DAVID SUTTON,          )
13                                 )
                    Appellee.      )
14   ______________________________)
15              Argued and Submitted on November 19, 2015
                        at Sacramento, California
16
                            Filed - December 3, 2015
17
              Appeal from the United States Bankruptcy Court
18                for the Eastern District of California
19       Honorable David E. Russell, Bankruptcy Judge, Presiding**
                         _________________________
20
     Appearances:     Michael W. Thomas of Thomas & Associates argued
21                    for appellants Andrew Kostecki and Alloy Steel
                      North America, Inc.; Brian Crone of Berry & Block
22                    argued for appellee Ronald David Sutton.
                         ____________________________
23
24       *
          This disposition is not appropriate for publication.
   Although it may be cited for whatever persuasive value it may
25 have (see Fed. R. App. P. 32.1), it has no precedential value.
26 See 9th Cir. BAP Rule 8024-1.
         **
27        The Honorable Michael S. McManus was assigned to the
   underlying bankruptcy case and heard all pretrial matters in this
28 adversary. Judge Russell entered the order on appeal.

                                      -1-
 1   Before:     JURY, FARIS, and DUNN, Bankruptcy Judges.
 2           Appellants Andrew Kostecki (Kostecki) and Alloy Steel North
 3   America, Inc. (Alloy Steel) (collectively, Plaintiffs) filed an
 4   adversary proceeding against chapter 71 debtor, Ronald David
 5   Sutton (Debtor), seeking to have their unliquidated prepetition
 6   debts declared nondischargeable under § 523(a)(2)(A).     Prior to
 7   trial, Debtor filed a motion in limine (MIL) seeking to strike
 8   Plaintiffs’ alternate direct testimony (ADT) declarations and
 9   exhibits at trial because they were not timely served, in
10   violation of Local Bankruptcy Rule (LBR) 9017-1.
11           The bankruptcy court commenced the trial by first hearing
12   Debtor’s MIL.     The court granted the motion, finding that
13   Plaintiffs’ untimely served ADT declarations and exhibits in
14   violation of LBR 9017-1 caused extreme prejudice to Debtor and
15   the court.     The court then invited Plaintiffs’ counsel to
16   proceed with the trial.     Counsel did not do so, contending that
17   he had nothing to proceed with in light of the court’s ruling on
18   the MIL.     The bankruptcy court subsequently entered judgment in
19   Debtor’s favor on the ground that Plaintiffs had presented no
20   evidence to support their fraud claims against Debtor.     This
21   appeal followed.
22           For the reasons stated below, we REVERSE the bankruptcy
23   court’s order granting Debtor’s MIL, VACATE the judgment and
24   REMAND this matter to the bankruptcy court for further
25
         1
26        Unless otherwise indicated, all chapter and section
   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
27 “Rule” references are to the Federal Rules of Bankruptcy
   Procedure and “Civil Rule” references are to the Federal Rules of
28 Civil Procedure.

                                      -2-
 1   proceedings not inconsistent with this memorandum disposition.
 2                                    I.    FACTS
 3   A.       Prepetition Events
 4            Debtor and his company, Ron Sutton’s Winners Circle, Inc.
 5   (RSWC), operated a race car driver development program in
 6   Roseville, California.        The program trained young drivers for a
 7   professional career in stock car racing, including races
 8   sanctioned by the National Association of Stock Car Auto Racing
 9   (NASCAR).
10            Kostecki’s minor son, Brodie, was an accomplished midget
11   race car driver in Australia.          Kostecki learned about Debtor and
12   RSWC through RSWC’s website.          There, Debtor used the NASCAR
13   trademark, stating that he was a Top NASCAR Talent Scout and
14   operated an annual NASCAR Talent Search Shootout.          The website
15   also contained photographs of NASCAR Team Drivers.          Debtor
16   further represented that RSWC had received a $210,000 cash
17   sponsorship from K&N Filters (K&N)2 in 2011.
18            Kostecki, an Australian citizen living in Australia at the
19   time, met with Debtor, who allegedly told Kostecki that he would
20   send emails to NASCAR sanctioned Sprint Cup Teams to discuss
21   where to place Brodie.        Kostecki eventually enrolled Brodie in
22   the program and they moved from Australia to Roseville,
23   California.      Kostecki sought and received a sponsorship for
24   Brodie’s racing from Alloy Steel.3
25
26        2
          K&N Filters is sometimes interchangeably referred to in
27 the record as K&N Engineering.
28        3
              Kostecki apparently was an employee of Alloy Steel.

                                           -3-
 1            A dispute subsequently arose between the parties and Debtor
 2   pertaining to Debtor’s and RSWC’s affiliation or association
 3   with NASCAR.      Thereafter, Debtor terminated Kostecki’s son from
 4   the program.      Sometime in 2011, Plaintiffs filed a state court
 5   lawsuit against Debtor and RSWC alleging, among other things,
 6   that Debtor misrepresented in advertising and other promotional
 7   materials that he and RSWC had an affiliation or association
 8   with NASCAR and had obtained a $210,000 cash sponsorship from
 9   K&N.4
10   B.       Bankruptcy Events
11            Debtor filed his chapter 7 petition on August 27, 2012.    In
12   Schedule F, he listed Plaintiffs as creditors with unsecured
13   claims arising out of a 2011 state court lawsuit against Debtor
14   and RSWC in an unknown amount.
15            On October 1, 2012, Plaintiffs filed this adversary
16   proceeding against Debtor seeking to have their unliquidated
17   debts declared nondischargeable under § 523(a)(2)(A).
18   Plaintiffs alleged, among other things, that Debtor had made
19   misrepresentations about his affiliation and association with
20   NASCAR and a $210,000 cash sponsorship obtained from K&N.
21            Debtor filed a motion for summary judgment (MSJ).
22   Plaintiffs opposed and submitted six declarations in support of
23   their opposition.      Those declarations included Kostecki’s and
24   the declaration of Plaintiffs’ attorney, Michael Thomas
25   (Thomas).
26
          4
27        K&N Engineering is a manufacturer of washable performance
   air filters and air intake systems. K&N has a racing contingency
28 program that affiliates with NASCAR and other similar entities.

                                       -4-
 1        Kostecki testified as to how he learned about RSWC and that
 2   he enrolled his son in the RSWC program based on the
 3   representations on RSWC’s website and from Debtor that his
 4   driver development program was affiliated with NASCAR and that
 5   he had obtained a $210,000 cash sponsorship from K&N.
 6   Attached to Kostecki’s declaration was an email from Debtor
 7   about Brodie’s selection to participate in the 2010 NASCAR
 8   Talent Search Shootout and a follow-up email stating that Brodie
 9   was a finalist for a spot in the NASCAR focused driver career
10   development program.   Attached to the follow-up email were full
11   season budgets that Debtor had prepared.   There, Debtor stated
12   that he had worked out two full season race plans, with costs,
13   and worked in $10,000 of K&N sponsorship funds.   Also attached
14   to Kostecki’s declaration was a flyer for the NASCAR Racing
15   Career Development Program which stated that the program
16   included, among other things, connections to NASCAR Cup Teams.
17        Attached to Thomas’ declaration were relevant portions of
18   Debtor’s and Kostecki’s deposition transcripts and various
19   exhibits.   Also attached was the deposition of Anthony Yorkman,
20   who was an employee and Sports Marketing Director of K&N
21   Engineering.   Yorkman testified, among other things, that K&N
22   did not award $210,000 in sponsorships to selected drivers in
23   connection with the 2010 Talent Search Shootout and gave no more
24   than $9,246.60 in products to Debtor in 2011.
25        Also included in opposition to the MSJ was the declaration
26   of Jason Houghtaling, an employee of RSWC.   Houghtaling declared
27   that Debtor had discussed the status of the litigation between
28   him and Kostecki, and that at one point in 2011, Debtor had him

                                    -5-
 1   and other employees cover up or remove any and all references to
 2   NASCAR.    He further declared that although Debtor and RSWC
 3   advertised as a NASCAR Driver Development Program and as a Top
 4   NASCAR Talent Scout, he was not aware of any driver enrolled in
 5   Debtor’s program ever having been placed on a NASCAR
 6   professional team.
 7        In addition, Plaintiffs included the declarations of Danny
 8   Cristiani and Michael Thompson, both of whom had enrolled their
 9   sons in Debtor’s program based on their belief that Debtor and
10   RSWC were affiliated with NASCAR.     Eventually, both fathers
11   withdrew their sons from the program.
12        Finally, Plaintiffs submitted the declaration of Rosalie
13   Nestore, a paralegal in the legal department of NASCAR.
14   Attached to her declaration was a letter dated April 27, 2011,
15   sent by NASCAR to Debtor and RSWC telling them to stop using
16   NASCAR’s intellectual property rights.     In response, Debtor
17   sought guidance from NASCAR seeking approval to use the phrase
18   “NASCAR focused Driver Career Development Program” in their
19   advertising material.    (Emphasis added.)   In a May 6, 2011,
20   letter to Debtor, NASCAR requested that Debtor cease and desist
21   its use of the NASCAR trademark as part of its advertising.
22        The bankruptcy court denied Debtor’s MSJ, finding that
23   material facts were in dispute.
24        On May 13, 2013, the bankruptcy court scheduled a trial to
25   commence on September 25-26, 2013, before Judge David R.
26   Russell.
27        On August 21, 2013, the bankruptcy court issued an Order
28   Setting Trial, which stated that the proceeding was governed by

                                     -6-
 1   LBR 9017-1.     Under that rule, Plaintiffs were required to submit
 2   their ADT declarations and related exhibits fourteen days before
 3   trial.5
 4           On August 30, 2013, Plaintiffs filed a motion seeking a
 5   continuance of the trial because Kostecki’s father had been
 6   diagnosed with cancer (Continuance Motion).     A few days later,
 7   Plaintiffs filed a motion seeking to shorten time for a hearing
 8   on the Continuance Motion.     The bankruptcy court issued an order
 9   shortening time, and the hearing on the Continuance Motion,
10   originally scheduled for October 7, 2013, was scheduled for
11
12
         5
             LBR 9017-1 provides in relevant part:
13
         (a)(1) Purpose. The purpose of this procedure is to
14       streamline the adducement of direct testimony in trials
15       and contested matters requiring an evidentiary hearing,
         so as to reduce trial time without sacrificing due
16       process and a fair trial. This procedure shall be
         known as the Alternate Direct Testimony Procedure.
17
         (2) Applicability. If ordered by the Court, the
18       Alternate Direct Testimony Procedure shall be used
19       in a trial or contested matter requiring an evidentiary
         hearing. . . .
20
         . . .
21
         (b) Submission of Alternate Direct Testimony
22
         Declarations, Exhibits, and Objections. Unless
23       otherwise ordered by the Court, copies of all alternate
         direct testimony declarations by witnesses and exhibits
24       that are intended to be presented at trial or hearing
         shall be furnished to opposing counsel as follows:
25
26       (1) Plaintiff’s Declarations and Exhibits. The
         plaintiff shall submit to opposing counsel all
27       such declarations and exhibits comprising the
         plaintiff’s case in chief fourteen (14) days before
28       trial.

                                      -7-
 1   September 16, 2013.   Based on the September 25th trial date,
 2   under LBR 9017-1, Plaintiffs were to provide all ADT
 3   declarations and trial exhibits to Debtor’s counsel by
 4   September 11, 2013, which they did not do.   The bankruptcy court
 5   granted Plaintiffs’ Continuance Motion on September 16, 2013.
 6        On November 21, 2013, the bankruptcy court scheduled a new
 7   trial date for March 10-11, 2014, before Judge Russell.
 8        On December 18, 2013, the bankruptcy court issued its
 9   formal order scheduling the trial date for March 10-11, 2014,
10   which again stated that LBR 9017-1 applied to the proceeding.
11   Plaintiffs were thus required to submit all ADT declarations and
12   trial exhibits no later than February 24, 2014 (i.e., 14 days
13   before trial).   They failed to do so.   Debtor timely filed his
14   ADT declarations and exhibits.
15        On February 25 and 26, 2014, Plaintiffs and Debtor
16   submitted deposition testimony each respective side intended to
17   use at trial under the parties’ Stipulation and Order for Use of
18   Deposition Transcripts in Lieu of Live Testimony.
19        Plaintiffs complied with LBR 9017-1 - albeit late - by
20   submitting the ADT declarations and exhibits they intended to
21   use in their case to Debtor’s counsel on March 3, 2014 - seven
22   days before trial.
23        On March 3, 2014, Debtor filed the MIL seeking to strike
24   any ADT declarations and exhibits that Plaintiffs intended to
25   use at trial as a sanction for failing to obey the bankruptcy
26   court’s scheduling order and LBR 9017-1.   To support his motion,
27   Debtor cited numerous cases that stand for the proposition that
28   courts have discretion to strike untimely filings.   Debtor also

                                      -8-
 1   maintained that the late-filed declarations prejudiced his case
 2   because he was not afforded adequate time to determine which
 3   witnesses to subject to cross-examination and prepare for that
 4   cross-examination.   Debtor further requested that the court
 5   reject Plaintiffs’ request to submit the substance of any
 6   proposed declaration via live witnesses.
 7        Plaintiffs opposed, asserting that they failed to comply
 8   with LBR 9017-1 because they had difficulty obtaining the signed
 9   declarations from the declarants for various reasons.
10   Plaintiffs’ excuse for not submitting the timely declaration of
11   Kostecki was that he lived in North Carolina and was traveling
12   in his capacity as Vice-President for Alloy Steel, such that it
13   was difficult to track him down and get documents to him for
14   review and signature.   As for Mr. Thompson, Plaintiffs
15   maintained that he lived in the Bay Area and due to his work
16   schedule, there was a delay in getting his signature.     Finally,
17   as to Mr. Cristiani, Plaintiffs stated that he lived in Ukiah,
18   California, and had recently acquired a new email address which
19   caused a delay in getting his declaration to him and the signed
20   declaration back.
21        Plaintiffs also argued that there was no prejudice to
22   Debtor or surprise since the ADT declarations were substantially
23   the same as those filed in opposition to Debtor’s MSJ.
24   Plaintiffs further asserted that all of the exhibits submitted
25   were either previously produced by Debtor or by third parties at
26   depositions.
27        The MIL was set to be heard on March 10, 2014, the day of
28   the trial.

                                    -9-
 1        On March 10, 2014, the bankruptcy court commenced the trial
 2   by first hearing Debtor’s MIL.    After concluding that
 3   Plaintiffs’ failure to comply with LBR 9017 caused extreme
 4   prejudice to Debtor in his trial preparation, the court granted
 5   the motion.   As a result, Plaintiffs could not use the ADT
 6   declarations or exhibits at trial to show that Debtor had made
 7   misrepresentations to Kostecki about his race car driver
 8   development program and affiliation with NASCAR or that Debtor
 9   had never received a $210,000 cash sponsorship from K&N.
10        After granting the MIL, the bankruptcy court invited
11   Plaintiffs’ counsel to proceed with the trial.    Counsel
12   responded by saying that he had nothing to proceed with.    The
13   bankruptcy court stated:   “So if you do not wish to proceed then
14   I will grant judgment for the defendant.”
15        The bankruptcy court entered the order granting Debtor’s
16   MIL on March 20, 2014.   Plaintiffs filed a notice of appeal from
17   the order on March 31, 2014.
18        The bankruptcy court issued a judgment in Debtor’s favor on
19   March 20, 2014, which stated:    “Findings of fact and/or
20   conclusions of law having been stated orally on the record and
21   good cause appearing, IT IS ORDERED that the judgment is for the
22   defendant.”
23        The bankruptcy court issued an amended judgment on
24   November 12, 2014, which states:    “IT IS ORDERED, that Judgment
25   for the Debtor Defendant against both Plaintiffs Andrew Kostecki
26   and Allow[sic] Steel North America, Inc. for failure to present
27   evidence or examine the Debtor[s].”
28

                                      -10-
 1                             II.    JURISDICTION
 2        The bankruptcy court had jurisdiction under 28 U.S.C.
 3   §§ 1334 and 157(b)(2)(A).       The order granting Debtor’s MIL was
 4   an interlocutory order that merged into the final judgment.
 5   United States v. Real Prop. Located at 475 Martin Lane, Beverly
 6   Hills, Cal., 545 F.3d 1134, 1141 (9th Cir. 2008) (under the
 7   merger rule interlocutory orders entered prior to the judgment
 8   merge into the judgment and may be challenged on appeal).
 9   Therefore, we have jurisdiction over both the order denying the
10   MIL and the amended judgment under 28 U.S.C. § 158.
11                                III.    ISSUES
12        Was the bankruptcy court’s decision to strike the ADT
13   declarations and exhibits akin to a sanction?
14        If the bankruptcy court’s decision was akin to a sanction,
15   what authority did the bankruptcy court rely upon to exercise
16   its discretion and issue the sanction?
17        Did the bankruptcy court abuse its discretion by striking
18   the late-filed ADT declarations and exhibits?
19                       IV.     STANDARDS OF REVIEW
20        The standard of review for the bankruptcy court’s exclusion
21   of evidence is the same under the court’s inherent powers, the
22   Local Rules of Court, and the Civil Rules.      We first engage in
23   de novo review of the legal issue of whether the bankruptcy
24   court possessed the power to exclude Plaintiffs’ evidence.      If
25   the power existed, the bankruptcy court’s exercise of that power
26   will only be reversed for an abuse of discretion.      Halaco Eng’g
27   Co. v. Costle, 843 F.2d 376, 379 (9th Cir. 1988).      “Where the
28   drastic sanctions of dismissal or default are imposed, however,

                                         -11-
 1   the range of discretion is narrowed and the losing party’s
 2   non-compliance must be due to willfulness, fault, or bad faith.”
 3   Fjelstad v. Am. Honda Motor Co., Inc., 762 F.2d 1334, 1337 (9th
 4   Cir. 1985).
 5        To determine whether the bankruptcy court abused its
 6   discretion, we conduct a two-step inquiry: (1) we review de novo
 7   whether the bankruptcy court “identified the correct legal rule
 8   to apply to the relief requested” and (2) if it did, whether the
 9   bankruptcy court's application of the legal standard was
10   illogical, implausible or “without support in inferences that
11   may be drawn from the facts in the record.”   United States v.
12   Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en banc).
13        Underlying findings of fact are reviewed for clear error.
14   Halaco Eng’g Co., 843 F.2d at 379.
15        We must inquire de novo whether judgment was properly
16   entered in favor of Debtor once Plaintiffs’ ADT declarations and
17   exhibits had been excluded.    Fireman’s Fund Ins. Cos. v. Grover
18   (In re Woodson Co.), 813 F.2d 266, 270 (9th Cir. 1987)
19   (bankruptcy court’s conclusions of law are reviewed de novo).
20                             V.   DISCUSSION
21        The underlying basis of this appeal appears to be the
22   considerable effect the bankruptcy court’s ruling had on
23   Plaintiffs’ case.   Plaintiffs characterize the court’s ruling as
24   a case-terminating sanction akin to dismissal, while Debtor
25   contends that the ruling was merely an evidentiary ruling which
26   did not amount to the dismissal of Plaintiffs’ case as there was
27   other evidence that they could have used to prove their case.
28   Therefore, Debtor asserts that the case law cited by Plaintiffs

                                     -12-
 1   that addresses the standards for imposing case-terminating
 2   sanctions under the Civil Rules is inapplicable.       However,
 3   according to Debtor, even if those standards apply, they have
 4   been met in this case.
 5           Under similar facts, the district court in In re Reimers
 6   concluded that the bankruptcy court’s granting of a motion in
 7   limine which resulted in the exclusion of declarations at trial
 8   was tantamount to a sanction.       2013 WL 9994337 (C.D. Cal.
 9   Feb. 12, 2013).     We agree with the reasoning set forth in
10   Reimers and adopt its analysis and conclusion for purposes of
11   this threshold issue.       Similar to the Reimers court, in our
12   view, the bankruptcy court’s ruling here was “tantamount to a
13   sanction.”     Id. at *1.    The MIL sought to strike Plaintiffs’
14   ADT declarations and exhibits because they were untimely filed
15   in violation of LBR 9017-1.6      Such an exclusion is analogous to
16   sanctions under Civil Rule 37(c)(1).       As explained in Reimers:
17           Under Rule 37(c)(1), a party who fails to disclose
             discovery materials may not use those materials as
18           evidence at trial. The Ninth Circuit has repeatedly
             referred to this consequence as a sanction. See,
19           e.g., Hoffman v. Constr. Protective Services, Inc.,
             541 F.3d 1175, 1180 (9th Cir. 2008) (referring to
20           Rule 37(c)(1) as “a self-executing, automatic sanction
             ...”); see also R & R Sails, Inc. v. Ins. Co. of
21           Pennsylvania, 673 F.3d 1240, 1247 (9th Cir. 2012)
             (noting that “evidence preclusion is, or at least can
22           be, a harsh sanction,” and finding that because the
             evidentiary sanction “dealt a fatal blow” to the
23           claim, “in practical terms, the sanction amounted to
24
         6
          Generally, the proper purpose of an in limine motion is
25 not to accuse opposing counsel of engaging in sanctionable
26 conduct, but “to aid the trial process by enabling the Court to
   rule in advance of trial on the relevance of certain forecasted
27 evidence, as to issues that are definitely set for trial, without
   lengthy argument at, or interruption of, the trial.” Palmieri v.
28 Defaria, 88 F.3d 136, 141 (2d Cir. 1996).

                                        -13-
 1        dismissal of a claim.”). And, as happened in this
          case, exclusion under Rule 37 of undisclosed materials
 2        is generally sought via a motion in limine. See
          Hoffman, 541 F.3d at 1180 (Rule 37(c)(1) exclusion
 3        sanction requested in a motion in limine). Thus, that
          Appellees here sought exclusion through a motion in
 4        limine does not mean that the result was a mere
          evidentiary ruling as opposed to a sanction. Ninth
 5        Circuit case law clearly treats such rulings as
          sanctions.
 6
 7   2013 WL 9994337, at *2-3.
 8        In addition, like Reimers, we conclude that the bankruptcy
 9   court’s ruling amounted to the dismissal of Plaintiffs’ fraud
10   claims based upon their failure to comply with the local rule.
11   See Thompson v. Hous. Auth. of City of L.A., 782 F.2d 829, 831
12   (9th Cir. 1986) (describing court’s inherent authority to issue
13   sanctions for non-compliance with procedures and orders).
14        Without the excluded evidence, it would be extremely
15   difficult, if not impossible, for Plaintiffs to prove their
16   case.   To establish nondischargeability as a result of fraud
17   under § 523(a)(2)(A), courts in the Ninth Circuit employ the
18   following five-part test:   (1) misrepresentation, fraudulent
19   omission or deceptive conduct by the debtor; (2) knowledge of
20   the falsity or deceptiveness of his statement or conduct; (3) an
21   intent to deceive; (4) justifiable reliance by the creditor on
22   the debtor’s statement or conduct; and (5) damage to the
23   creditor proximately caused by its reliance on the debtor's
24   statement or conduct.   Harmon v. Kobrin (In re Harmon), 250 F.3d
25   1240, 1246 (9th Cir. 2001).
26        Here, the record shows that the underlying issues were
27   complex because there were multiple alleged misrepresentations
28   made by Debtor orally and in RSWC promotional materials.

                                    -14-
 1   Further, the intent to deceive is a factual question and largely
 2   depends upon the credibility of witnesses and the weight to be
 3   given to their testimony.   See generally Lazaron v. Lucas
 4   (In re Lucas), 386 B.R. 332 (Bankr. D.N.M. 2008) (“Rarely is it
 5   appropriate to grant summary judgment on a claim for
 6   nondischargeability based on 11 U.S.C. § 523(a)(2)(A) because
 7   intent to defraud often depends on the credibility of
 8   witnesses.”).   It was the bankruptcy court’s role to make the
 9   necessary credibility determinations.    However, because the
10   bankruptcy court excluded Plaintiffs’ late-filed declarations
11   and exhibits, they had no opportunity to establish their
12   credibility in either the first instance or through cross-
13   examination.
14        We also give little credence to Debtor’s suggestion that
15   Plaintiffs could have sought leave of court to put on live
16   testimony.   Debtor specifically requested in the MIL that the
17   bankruptcy court deny any request from Plaintiffs to present
18   live testimony and the bankruptcy court’s comments in its ruling
19   essentially foreclosed that possibility.
20        In any event, even if the exclusion of evidence in this
21   case does not amount to a case-terminating sanction, preclusion
22   of evidence is a “drastic measure.”    Taylor v. Illinois,
23   484 U.S. 400, 417 n.23 (1988); see also R & R Sails, Inc.,
24   673 F.3d at 1247 (noting that “evidence preclusion is, or at
25   least can be, a harsh sanction”).     Accordingly, we next consider
26   the underlying authority for the bankruptcy court’s action de
27   novo and whether its imposition of sanctions under that
28   authority was an abuse of discretion.    Halaco, 843 F.2d at 379;

                                    -15-
 1   see also Zambrano v. City of Tustin, 885 F.2d 1473, 1476 (9th
 2   Cir. 1989) (“In determining the validity of any judicial
 3   sanction, we must first consider the underlying authority for
 4   the court’s action.”).   “‘For a sanction to be validly imposed,
 5   the conduct in question must be sanctionable under the authority
 6   relied on.’”   Cunningham v. Cnty. of L.A., 879 F.2d 481, 490
 7   (9th Cir. 1988); United States v. Stoneberger, 805 F.2d 1391,
 8   1392 (9th Cir. 1986).
 9        The bankruptcy court’s power to sanction derives from
10   several sources:   its inherent power, Local Rules of Court, and
11   Federal statute.   Here, we can only speculate as to what
12   authority the bankruptcy court relied upon since the authority
13   was neither briefed in the MIL nor mentioned in the court’s
14   ruling.   Ultimately we conclude that regardless of the authority
15   relied upon, the bankruptcy court’s decision to exclude
16   Plaintiffs’ late-filed declarations and exhibits at trial was an
17   abuse of discretion.
18        Inherent Powers.    A bankruptcy court’s inherent powers are
19   “governed not by rule or statute but by the control necessarily
20   vested in courts to manage their own affairs so as to achieve
21   the orderly and expeditious disposition of cases.”   Chambers v.
22   NASCO, Inc., 501 U.S. 32, 43 (1991).   In appropriate cases, a
23   court may select from the menu of sanctions available under its
24   inherent powers the draconian sanction of dismissal to “the
25   ‘less severe sanction’ of an assessment of attorney’s fees,”
26   Chambers, 501 U.S. at 44-45, to an intermediate sanction of the
27   exclusion of some evidence or testimony, see Dillon v. Nissan
28   Motor Co., 986 F.2d 263, 266-69 (8th Cir. 1993).

                                     -16-
 1          Because “inherent powers are shielded from direct
 2   democratic controls, they must be exercised with restraint and
 3   discretion.”    Roadway Express Inc. v. Peper, 447 U.S. 752, 764
 4   (1980).    There, the Supreme Court stated:
 5          Similarly, the trial court did not make a specific
            finding as to whether counsel’s conduct in this case
 6          constituted or was tantamount to bad faith, a finding
            that would have to precede any sanction under the
 7          court’s inherent powers.
 8   Id. at 764.    To insure that restraint is properly exercised, the
 9   Ninth Circuit has routinely insisted upon a finding of bad faith
10   before sanctions may be imposed under the court’s inherent
11   power.    For example, in Stoneberger the district court imposed
12   sanctions on a chronically late attorney.     Reversing the
13   imposition of sanctions, the Ninth Circuit held that mere
14   tardiness does not demonstrate the improper purpose or intent
15   required for inherent power sanctions.    805 F.2d at 1393.
16   Rather, “[a] specific finding of bad faith . . . must ‘precede
17   any sanction under the court’s inherent powers.’”     Id. (quoting
18   Roadway, 447 U.S. at 767).    The Ninth Circuit again reversed
19   sanctions due to a lack of intent in Zambrano, 885 F.2d 1473.
20   There, the plaintiff’s counsel negligently failed to comply with
21   local court rules that required admission to the district court
22   bar.    The Ninth Circuit vacated the sanctions, holding that the
23   district court may not sanction mere “inadvertent” conduct.      Id.
24   at 1485; see also id. at 1483 (“Nothing in the record indicates
25   that their failure to request admission to the district bar was
26   anything more than an oversight or ordinary negligence on their
27   part.”); id. at 1484 (“Willful or reckless disregard of court
28   rules justifies punitive action.”).    Similarly, in Yagman v.

                                     -17-
 1   Republic Insurance, 987 F.2d 622, 628 (9th Cir. 1993), the Ninth
 2   Circuit vacated the imposition of sanctions where there was no
 3   evidence that the attorney had “acted in bad faith or intended
 4   to mislead the court.”
 5        Accordingly, to the extent the bankruptcy court’s decision
 6   to exclude Plaintiffs’ late-filed declarations and exhibits was
 7   based on its inherent powers, we must reverse.     The record does
 8   not show that Debtor satisfied the high burden necessary for the
 9   preclusion of evidence under the bankruptcy court’s inherent
10   power, and there is no finding of bad faith.
11        Local Rules.   Although a bankruptcy court may sanction an
12   attorney for violating local rules, Miranda v. S. Pac. Transp.
13   Co., 710 F.2d 516, 519 (9th Cir. 1983), the Ninth Circuit has
14   required sanctions under local rules to meet strict criteria.
15   Zambrano, 885 F.2d at 1477.   In addition to being consistent
16   with the Federal rules, other statutes, and principles of “right
17   and justice,” the sanctions order must be
18        necessary for the court to ‘carry out the conduct of
          its business.’ There must be a close connection
19        between the sanctionable conduct and the need to
          preserve the integrity of the court docket or the
20        sanctity of the federal rules. Finally, any sanction
          imposed must be proportionate to the offense and
21        commensurate with principles of restraint and dignity
          inherent in judicial power. This last principle
22        includes a responsibility to consider the usefulness
          of more moderate penalties before imposing a monetary
23        sanction.
24   Id. at 1480 (emphasis added).   Finally, there must be a finding
25   of recklessness, repeated disregard of court rules, gross
26   negligence, or willful misconduct.     Id.; see also Wehrli v.
27   Pagliotti, 1991 WL 143815, at *2 (9th Cir. Aug. 1, 1991) (“The
28   district court’s authority to impose sanctions for violation of

                                     -18-
 1   local rules should be reserved for ‘serious breaches,’ not
 2   thoughtless conduct.”); In re Colville Confederated Tribes,
 3   980 F.2d 736 (9th Cir. 1992) (Table) (noting that sanctions for
 4   violation of local rules are subject to the limits upon the
 5   court’s inherent power and statutory authority, and that
 6   “[t]hese limits require at a minimum that the sanctions order be
 7   supported with an explicit finding of an attorney’s bad faith,
 8   and that the misconduct amount to more than a negligent
 9   transgression of the local rules.”).
10        Although it is undisputed that Plaintiffs violated
11   LBR 9017-1 by filing their ADT declarations and exhibits late,
12   the rule itself does not expressly authorize the imposition of
13   sanctions.   In fact, it does not give warning of the possible
14   consequence if the rules are not strictly followed.   We look
15   instead to LBR 1001-1(g) which authorizes the bankruptcy court
16   to impose sanctions for noncompliance with the local rules:
17        Failure of counsel or of a party to comply with these
          Rules, with the Federal Rules of Civil Procedure or
18        the Federal Rules of Bankruptcy Procedure, or with any
          order of the Court may be grounds for imposition of
19        any and all sanctions authorized by statute or rule or
          within the inherent power of the Court, including,
20        without limitation, dismissal of any action, entry of
          default, finding of contempt, imposition of monetary
21        sanctions or attorneys’ fees and costs, and other
          lesser sanctions.
22
23   This rule gives fair warning to an attorney or party that a
24   violation of the local rules will subject him or her to a
25   variety of sanctions, including dismissal of any action and
26   “other lesser sanctions.”
27        However, contrary to the strict requirements set forth in
28   Zambrano, the record does not indicate that the bankruptcy court

                                    -19-
 1   considered a more moderate penalty before imposing what was
 2   essentially a case-terminating sanction.   For example, the court
 3   could have granted a continuance to allow Debtor’s attorney more
 4   time to prepare and impose a monetary sanction to compensate
 5   Debtor’s attorney for the wasted appearance.   A continuance is
 6   the preferred sanction.   See United States v. Golyansky,
 7   291 F.3d 1245, 1249 (10th Cir. 2002) (“It would be a rare case
 8   where, absent bad faith, a district court should exclude
 9   evidence rather than continue the proceedings.”).    Here, the
10   bankruptcy court discussed no alternatives.
11        The bankruptcy court also did not explicitly find that
12   Plaintiffs’ late filing was reckless or willful, or involved
13   repeated disregard of court rules or gross negligence.    Although
14   Debtor complains that Plaintiffs did not comply with LBR 9017-1
15   in connection with the first trial date, their failure to do so
16   does not demonstrate repeated disregard of court rules when
17   their Continuance Motion was pending prior to the time their
18   declarations were due.    There is also nothing in the record that
19   shows Plaintiffs’ conduct was reckless or willful.    While their
20   conduct shows a lack of diligence, that does not make it
21   sanctionable under Ninth Circuit case law cited above.
22        Accordingly, to the extent the bankruptcy court’s decision
23   to exclude Plaintiffs’ late-filed declarations and exhibits was
24   based on its sanction power under LBR 1001-1(g), we must
25   reverse; the requirements under Zambrano were not met.
26        Civil Rules.   Although the bankruptcy court’s decision to
27   exclude the late-filed declarations and exhibits is analogous to
28   Civil Rule 37(c)(1), that rule is inapplicable by its very

                                     -20-
 1   terms.    Civil Rule 37(c)(1) provides:
 2          (1) Failure to Disclose or Supplement. If a party
            fails to provide information or identify a witness as
 3          required by Rule 26(a) or (e), the party is not
            allowed to use that information or witness to supply
 4          evidence on a motion, at a hearing, or at a trial,
            unless the failure was substantially justified or is
 5          harmless. In addition to or instead of this sanction,
            the court, on motion and after giving an opportunity
 6          to be heard:
 7          (A) may order payment of the reasonable expenses,
            including attorney's fees, caused by the failure;
 8
            (B) may inform the jury of the party's failure; and
 9
            (C) may impose other appropriate sanctions, including
10          any of the orders listed in Rule 37(b)(2)(A)(i)-(vi).
11   Civil Rule 37 does not appear implicated in this case because
12   there was no discovery or disclosure violation.
13          Generally, the Ninth Circuit has limited application of
14   Civil Rule 37 to its literal scope.    Halaco, 843 F.2d at 380
15   n.1.    Since there was no discovery-related misconduct,
16   Plaintiffs’ conduct does not fall within the literal language of
17   Civil Rule 37(c)(1), or for that matter any other part of the
18   rule.    The bankruptcy court thus did not possess the power to
19   exclude Plaintiffs’ late-filed declarations and exhibits as a
20   sanction under Civil Rule 37.
21          Even if the Civil Rule was applicable, under Ninth Circuit
22   law, the court must weigh five factors in determining whether it
23   is appropriate to exclude evidence as a sanction: (1) the
24   public’s interest in expeditious resolution of litigation;
25   (2) the court’s need to manage its docket; (3) the risk of
26   prejudice to the defendants; (4) the public policy favoring
27   disposition of cases on their merits; and (5) the availability
28   of less drastic sanctions.    Thompson, 782 F.2d at 831; Malone v.

                                     -21-
 1   U.S. Postal Serv., 833 F.2d 128, 130 (9th Cir. 1987).      And,
 2   where a sanction amounts to a case-terminating sanction, the
 3   court must also consider whether the noncompliance involved
 4   willfulness, fault, or bad faith.      See R & R Sails, Inc.,
 5   673 F.3d at 1247 (“sanction amounted to dismissal of a claim,
 6   [so] the district court was required to consider whether the
 7   claimed noncompliance involved willfulness, fault, or bad faith,
 8   . . . and also to consider the availability of lesser
 9   sanction”); Fjelstad, 762 F.2d at 1337.      If the bankruptcy court
10   fails to make explicit findings for each of these factors, the
11   appellate court must review the record independently to
12   determine whether the dismissal was an abuse of discretion.
13   Malone, 833 F.2d at 130.
14        Here, Debtor argues that even if the court were obligated
15   to apply these factors, the record amply supports the conclusion
16   that the bankruptcy court did not abuse its discretion by
17   excluding Plaintiffs’ evidence.   Without matching up the
18   factors to his argument, Debtor maintains that (1) the court
19   found “extreme prejudice” (factor three); (2) the court found
20   that Plaintiffs’ failure to comply with LBR 9017-1 disrupted the
21   proceedings (factor two); and (3) there was no need for the
22   court to unilaterally consider continuing the trial in order to
23   cure Plaintiffs’ failure to comply with LBR 9017-1 under these
24   circumstances (factor five?).   Debtor also argues that it was
25   Plaintiffs’ own fault for failing to timely submit the
26   declarations and exhibits, as their explanation for the delay
27   does not show circumstances beyond their control.      Therefore,
28   according to Debtor, the requirement for a finding of

                                     -22-
 1   willfulness, bad faith, or fault, under R & R Sails has been
 2   met.
 3          First, even if we were to conclude that the bankruptcy
 4   court implicitly found some factors that would support its
 5   ruling, it is not evident from the record that other factors
 6   were considered.    The court did not take into account whether
 7   less drastic sanctions could remedy the harm caused to Debtor’s
 8   ability to respond to and defend against Plaintiffs’ fraud
 9   claims.    Nor is there any indication in the record that the
10   court considered the strong public policy favoring disposition
11   of cases on their merits.    There was no egregious conduct in
12   this case that would override that policy.    It is thus not
13   apparent from the record before us that a proper weighing of the
14   factors would necessarily result in the sanction of dismissal.
15          Second, as noted above, the bankruptcy court made no
16   findings of willfulness, bad faith, or fault.    We are not
17   persuaded that the fault at issue here — really more like
18   negligence or oversight — can support the “drastic measure” of
19   excluding Plaintiffs’ evidence.    As noted before, while
20   Plaintiffs’ conduct shows a lack of diligence and could be
21   construed as negligence, mere negligence without more is an
22   insufficient ground for imposing case-terminating sanctions.
23   See Zambrano, 885 F.2d at 1480 (“Thus, while we believe that
24   Congress authorized the federal courts to wield reasonable
25   authority over attorneys appearing before them, we do not think
26   that the imposition of financial sanctions for mere negligent
27   violations of the local rules is consistent with the intent of
28   Congress or with the restraint required of the federal courts in

                                     -23-
 1   sanction cases.”).
 2        Finally, “[t]o support a finding of prejudice, the court
 3   must determine that the delay impacted the defendant’s ability
 4   to prepare or present its case.”    Golyansky, 291 F.3d at 1250.
 5   Although Debtor complained that the delay impacted his ability
 6   to determine which witnesses to cross-examine and prepare for
 7   that cross-examination, these complaints do not add up to
 8   extreme prejudice.   Granted, we do not have the late-filed
 9   declarations before us in the record.    However, Plaintiffs’
10   counsel made an offer of proof before the bankruptcy court and
11   on appeal that the ADT declarations were substantially similar
12   in substance to Plaintiffs’ summary judgment declarations.
13   Therefore, we have good reason to believe that months prior to
14   the trial, Debtor had a good understanding as to what the ADT
15   testimony was regarding the various misrepresentations.    Plus,
16   Debtor had the ADT declarations and exhibits a full seven days
17   before trial was to commence.   In short, although the
18   declarations in connection with the summary judgment were in a
19   different format and submitted for a different purpose, there is
20   nothing specific in the record from Debtor that suggests there
21   was any real surprise in the content of the late-filed
22   declarations.
23        Accordingly, while there may have been some prejudice to
24   Debtor, the record does not support the bankruptcy court’s
25   finding of “extreme prejudice.”    Assuming that there was some
26   prejudice to Debtor, a short continuance of the trial could have
27   remedied the prejudice that concerned Debtor.
28        In sum, it appears that a lack of diligence on the part of

                                     -24-
 1   Plaintiffs or their counsel may have disrupted the court’s
 2   docket.   Such conduct makes some sanction a realistic
 3   possibility.   However, to the extent the bankruptcy court had
 4   authority to impose the sanction under its inherent powers, the
 5   Local Court Rules, or the Civil Rules, the bankruptcy court
 6   abused its discretion by granting the MIL and excluding the
 7   evidence for the reasons discussed above.   Therefore, we must
 8   find the bankruptcy court erred in entering judgment in favor of
 9   Debtor.
10                            VI.   CONCLUSION
11        For the reasons stated, we REVERSE the bankruptcy court’s
12   order granting Debtor’s MIL, VACATE the judgment and REMAND this
13   matter to the bankruptcy court for further proceedings not
14   inconsistent with this memorandum disposition.
15
16
17
18
19
20
21
22
23
24
25
26
27
28

                                    -25-
