United States District Court, D. Idaho
LYNN WINMILL U.S. DISTRICT COURT JUDGE.
the Court is Appellants McCall Weddings and Steve and Shannon
Berry's appeal from the bankruptcy court's September
18, 2018 default judgment. The judgment awarded the Berrys
$3, 000 on one of the seven claims contained in
Appellants' adversary complaint. The bankruptcy court
dismissed the remaining claims. For the reasons explained
below, the Court will affirm.
August 2017, Sherry Scheline filed a bankruptcy petition.
Shortly after, McCall Weddings and the Berrys filed an
adversary complaint against her. Scheline did not respond,
prompting the bankruptcy court to enter her default.
2018, the bankruptcy court conducted an evidentiary hearing
on McCall Weddings' motion for a default judgment. At the
hearing, both sides presented evidence on a wide range of
issues, including the merits of McCall Weddings' claims.
The adversary complaint contained seven claims; the one most
relevant to this appeal is McCall Weddings' claim that
Scheline defamed it by telling others that McCall Weddings
had hacked her email account. (Scheline's allegedly
defamatory communications are discussed in more detail
considering the evidence presented at the hearing, the
bankruptcy court entered a $3, 000 non-dischargeable judgment
in the Berrys' favor on the seventh claim for relief.
That claim was brought under § 523(a)(6) of the
Bankruptcy Code; it asked the bankruptcy court for a
“Determination that Debt Owed to Plaintiffs for
Defendant's Slander Per Se is Excepted from Discharge
Pursuant to 11 U.S.C. § 523(a)(6).” Adversary
Compl., at 20. The bankruptcy court dismissed the
remaining claims. McCall Weddings now appeals.
appeal, McCall Weddings argues that the bankruptcy court
abused its discretion in ruling on the motion for a default
judgment. Additionally, McCall Weddings says the bankruptcy
court failed to apply governing federal law in deciding
whether Scheline made defamatory statements.
Court has jurisdiction to entertain an appeal from the
bankruptcy court under 28 U.S.C. § 158(a), which
provides: “The district courts of the United States
shall have jurisdiction to hear appeals . . . from final
judgments, orders, and decrees” of bankruptcy judges.
Court reviews the bankruptcy court's entry or denial of a
default judgment under Rule 55(b) for an abuse of discretion.
Eitel v. McCool, 782 F.2d 1470 (9th Cir. 1986). An
abuse of discretion occurs when a court makes an error of
law, rests its decision on clearly erroneous findings of
fact, or when the reviewing court is left with a definite and
firm conviction that the bankruptcy court committed a clear
error of judgment. United States v. Hinkson, 585
F.3d 1247, 1260 (9th Cir. 2009).
McCall Weddings' contention that the bankruptcy court
wrongly concluded that certain of Scheline's statements
were statements of opinion, and thus not defamatory, the
Court reviews these conclusions of law de novo. See
Gardner v. Martino, 563 F.3d 981, 986 (9th Cir. 2009)
(“Whether an allegedly defamatory statement is one of
opinion or fact is a question of law.”).
Weddings identifies three issues on appeal. The first two
relate to the extent of a bankruptcy court's discretion
in ruling on a motion for default judgment. The third relates
to Scheline's alleged defamation of McCall Weddings.
See Opening Br., Dkt. 8, at 7.
The Default Judgment
Weddings contends that the bankruptcy court abused its
discretion in two related ways when it ruled on its motion
for a default judgment. First, McCall Weddings says the
bankruptcy court “failed to deem the complaint's
factual allegations admitted as a matter of law.”
Id. at 12. Second, McCall Weddings says the
bankruptcy court “erroneously considered
defendant's [Scheline's] testimony” in deciding
whether to enter a default judgment. Id. at 21.
Weddings misunderstands the breadth of a bankruptcy
court's discretion when faced with a motion for default
judgment. While it is generally true that “upon default
the factual allegations of the complaint, except those
relating to the amount of damages, will be taken as true,
” Geddes v. United Fin. Group, 559 F.2d 557,
560 (9th Cir. 1977) (citations omitted), this is not always
so. Rather, a court entertaining a motion for default
judgment may decide to conduct hearings and consider evidence
offered at those hearings. See Fed. R. Civ. P.
Rule of Civil Procedure 55(b)(2) clarifies the point. It
grants the court broad discretion in deciding whether to
enter a default judgment and in deciding whether to conduct
any hearings. It states that that “[t]he court may
conduct hearings or make referrals . . . when, to enter or
effectuate judgment, it needs to:
(A) conduct an accounting;
(B) determine the amount of damages;
(C) establish the truth of any allegation by
(D) investigate any other matter.
Fed. R. Civ. P. 55(b)(2) (emphasis added).
bankruptcy court were duty bound to accept all well-pleaded
factual allegations as true - which is what McCall Weddings
is arguing - then Rule 55 could not grant trial courts
authority to conduct hearings to “establish the truth
of any allegation by evidence.” R. 55(b)(2). In other
words, this Court need not go beyond language of the rule to
resolve the first two issues on appeal.
Ninth Circuit authority reinforces the conclusion. Eitel
v. McCool, 782 F.2d 1470, 1471 (9th Cir. 1986) held that
deciding whether to enter a default judgment is committed to
the sound discretion of the lower court. Eitel
identified seven factors trial courts may consider in
exercising that discretion:
(1) the possibility of prejudice to the plaintiff;
(2) the merits of plaintiff's ...