Now Updating
In re: MICHELE LYNN MCKEE,

Summarizing by Michael Holmes

In re: ROBERTO C. HERNANDEZ

Case Type:
Business
Case Status:
Affirmed
Citation:
CC-22-1122-GLS (9th Circuit, Nov 03,2022) Not Published
Tag(s):
Ruling:
The Ninth Circuit Bankruptcy Appellate Panel (BAP) upheld the bankruptcy court's decision overruling the debtor's objection to the claim of the debtor's brother based on both a factual finding that the debtor failed to present evidence that he was entitled to a setoff against the claim and based on a legal holding that debtor was barred from asserting any such setoff because he had failed to raise the alleged setoff as a cross-claim in pre-petition litigation as required under California law.
Procedural context:
The Los Angeles County Superior Court entered judgment against debtor and in favor of his brother based on debtor's breach of a termination agreement. The California Court of Appeal affirmed. Debtor filed bankruptcy and the brother filed a claim based on the judgment. Debtor objected to the claim but the bankruptcy court overruled the objection, and the BAP affirmed.
Facts:
Prior to the bankruptcy, debtor's brother filed a lawsuit against debtor in state court for breach of an agreement terminating their business partnership, an auto shop. Debtor did not raise any cross-claims against his brother, the state court entered judgment in favor of the brother on his claims, and the judgment was affirmed on appeal. Debtor then filed chapter 11 bankruptcy and the brother filed a claim based on the judgment. Debtor objected to the claim on the basis that debtor was entitled to a setoff based on debtor's payment of personal income taxes and the brother's alleged liability for half of those taxes for his 50 percent interest in the partnership. The bankruptcy court overruled the objection for two reasons. First, debtor did not raise the alleged liability as a compulsory cross-claim in the California litigation, so he waived any right to assert the right to a setoff as a matter of law. Second, even if he had not waived the setoff, debtor had not produced evidence that his brother was responsible for debtor's personal tax liability.
Judge(s):
GAN, LAFFERTY, and SPRAKER

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