Tenth Circuit lays out the elements of denial of discharge for failure to obey an order.

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Case Type:
Case Status:
No. 18-8026 (10th Circuit, Dec 07,2018) Published
Tenth Circuit affirmed ruling of U.S. District Court (D. Wyo.), which affirmed rulings and reversed rulings of bankruptcy court. Notwithstanding post-confirmation closing of chapter 11 case, bankruptcy court retained jurisdiction to enter order authorizing sale of property. Bankruptcy court improperly failed to deny debtors' discharge based on willful failure to comply with sale order. Advice of counsel did not negate willfulness. Bankruptcy court's fee award against Trustee was improper based on improper finding that debtors acted without willfulness.
Procedural context:
Bankruptcy court entered orders on adversary proceeding (1) denying debtor-defendants' motion to dismiss; (2) denying their CRCP 60(b) motions; (3) granting their claim for discharge; and (4) requiring the Trustee to pay their attorney fees as a discovery sanction. District Court affirmed orders 1 and 2, but reversed orders 3 and 4. Debtor-defendants appealed to Tenth Circuit.
Bankruptcy court confirmed Raels' amended chapter 11 plan and granted final decree. Plan required Raels to satisfy debt to Wells Fargo by selling parcels of real property in Wyoming and making monthly payments to Wells Fargo. After Raels defaulted on their monthly payments, Wells Fargo obtained state court judgments against them and filed liens against the Wyoming properties based on those judgments. In response, Raels filed motions in the bankruptcy court to reopen chapter 11 case and hold Wells Fargo in contempt for filing the state court proceedings. In the reopened proceedings, the bankruptcy court issued order at Raels' request approving sale of the Wyoming properties that were the subject of the liens ("Sale Order"). Consistent with terms of the Plan, the Sale Order required Raels pay the proceeds to Wells Fargo. The court denied the Raels' motions to hold Wells Fargo in contempt for obtaining the state court judgment and filing the liens. After the court denied the Raels' motion for reconsideration of the contempt orders, they appealed to the BAP for the 10th Circuit, which affirmed. While the appeal of the contempt orders was pending, the Raels closed on the sale of one of the Wyoming properties that was the subject of the state court liens and bankruptcy court's sale order, but did not give the proceeds to Wells Fargo. Instead, almost a year after the closing, they used the proceeds to pay their non-dischargeable legal fees and IRS debt. Soon thereafter, they converted their chapter 11 case to chapter 7 and filed a motion for discharge. The Trustee then commenced an adversary proceeding to prevent discharge under 11 USC 727(a)(6) on the ground the Raels violated the Sale Order by not giving Wells Fargo the proceeds of the sale. The Raels moved to dismiss the adversary proceeding and to set aside the Sale Order,
Lucero, Kelly, Phillips

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