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Faden v. Segal (In re Segal)

9th Circuit Bankruptcy Appellate Panel Nos. CC-14-1175-KuPaTa and CC-14-1224-KuPaTa
In the unpublished decisions, the 9th Circuit Bankruptcy Appellate Panel ("BAP") affirmed the bankruptcy court's ruling holding creditor Stephen Fade ("Faden") in contempt based on Faden knowing a discharge had been entered and Faden's actions violated the discharge injunction. However, the BAP vacated and remanded the award of sanctions against Faden. The BAP also affirmed the bankruptcy court's denial of awarding emotional distress damages in favor of Mrs. Segal based on no causal link between the violation of the discharge injunction Mrs. Segal's asserted emotional distress.
Procedural context:
Faden appealed the bankruptcy court's finding of contempt and award of sanctions. In the cross-appeal, the Segals appealed the bankruptcy court's denial of an award of Mrs. Segals asserted emotional distress claim.
Faden sued the Segals and entities owned by the Segals pursuant to an alleged default of promissory notes. The Segals stipulated to the entry of judge in the amount of $346,997. Faden and other creditors commenced an involuntary chapter 7 bankruptcy against the Segals. Ultimately, the bankruptcy court only entered relief against Mr. Segal. Faden purported sold his interest in the stipulated judgment to a third party who sought to except the obligation from discharge. However, the claim was dismissed with prejudice. Mr. Segal received his chapter 7 discharge and the notice of the discharge was mailed Faden. Approximately 1 year after the entry of the discharge, Faden commenced a law suit against entities the Segals owned; and, also filed a cross-complaint against the Segals. Mr. Segal successfully reopened the chapter 7 case and sought an order to show cause asserting Faden intentionally violated the discharge injunction. The bankruptcy court held an evidentiaryhearing wherein Faden did not appear to give any testimony; rather, his counsel relied on previously filed declarations on Faden's behalf. Faden asserted that since the complaint was never served on the Segals individually that the discharge injunction was never violated. Mrs. Segal's evidence supporting the asserted emotional distress was limited to Mrs. Segal's testimony only. The bankruptcy court determine that the discharge of Mr. Segal extended to Mrs. Segal relating to community property. The bankruptcy court ruled that Faden had knowledge of the discharge; therefore, naming the Segals in the cross-complaint violated that discharge injunction; and, awarded the Segals their attorneys' fees. The Court further ruled that it could not award emotional distress damages based on the evidence presented by Mrs. Segal.
KURTZ, PAPPAS and TAYLOR, Bankruptcy Judges

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