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In re Zachary Allen ; Tiara Donegan

Summarizing by Lars Fuller

In re Crystal Cathedral Ministries

Case Type:
Business
Case Status:
Affirmed
Citation:
BAP No. CC-20-1103-FLT (9th Circuit, May 28,2021) Not Published
Tag(s):
Ruling:
The bankruptcy court did not abuse its discretion in sanctioning the reorganized debtor's attorney for causing the reorganized debtor to make "reckless and frivolous" arguments regarding the effect of confirmation of the reorganized debtor's chapter 11 bankruptcy plan in order to pressure a creditor to release claims post-confirmation.
Procedural context:
The reorganized debtor, Crystal Cathedral Ministries ("CCM"), sued the daughter of the late Robert Shuler in state court after CCM's chapter 11 plan was confirmed and the case was closed. Apparently frustrated with the state-court litigation, CCM filed a motion, in bankruptcy court, to have Mr. Shuler's daughter held in contempt for violating the discharge injunction. Robert Shuler's daughter fought the contempt motion and filed a Rule 9011 motion against CCM's attorney. After an evidentiary hearing, the bankruptcy court denied CCM's contempt motion and sanctioned CCM's attorney. CCM's attorney appealed.
Facts:
Crystal Cathedral Ministries was a "mega-church" in Orange County, California, which prominently displayed the building, the "Crystal Cathedral," in its TV broadcasts. The force behind CCM was the late Dr. Robert Shuler. Dr. Shuler's daughter, Carol Milner, was involved in CCM's operations. Milner wrote a play that CCM staged in 2005. The play was expensive to stage, and apparently caused CCM to suffer financial losses. CCM stopped staging the play and signed a settlement agreement with Milner. The settlement agreement required CCM to store the play's physical assets ("property") and to pay Milner $900,000. CCM stored the property in seven trailers parked on leased property. In October 2010, CCM filed a chapter 11 bankruptcy petition. The settlement agreement was not scheduled as an executory contract or mentioned in CCM's motion for authority to reject executory contracts. Milner filed four proofs of claim, but none related to the settlement agreement. The creditors' committee filed a plan that called for liquidation of substantially all of CCM's real property. The plan included a § 1141 discharge. The confirmation order included lists of executory contracts that were assumed or rejected. The settlement agreement was not included in either list. The bankruptcy court then closed the chapter 11 case. CCM, as a reorganized debtor, sued Milner in state court in 2017. CCM asserted that the settlement agreement was an executory contract rejected in CCM's bankruptcy case. Unhappy with the lack of progress in the state court litigation, CCM moved to have the bankruptcy court hold Milner in contempt for violation of the discharge injunction. Milner moved for sanctions against CCM's attorney under Rule 9011.
Judge(s):
FARIS, LAFFERTY, and TAYLOR, Bankruptcy Judges

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