PRICE v. SPOKANE ROCK I, LLC
Appeals court talks about discharging a debt when the issue is denial of discharge.
- Rochelle Quick Take
View Rochelle Summary- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- 16-35753 (9th Circuit, Sep 14,2018) Published
- Tag(s):
- Ruling:
- Chapter 11 cases for individuals may create discharge problems in a liquidating chapter 11. In this appeal, the individual chapter 11 debtors did not continue in their pre-petition businesses, and substantially all of their estates' asserts were liquidated. Consequently, the debtors were not entitled to a discharge under section 1141(d)(3). The Ninth Circuit rejected the argument that the plan was not a liquidating plan even though the debtors kept their exempt property and worthless property. The Ninth Circuit also strictly construed the "engage in business" prong of section 1141(d)(3)(B).
- Procedural context:
- The debtors appealed the district court's decision. The district court had affirmed the bankruptcy court's decision finding that the debtors' obligations to the appellant were not dischargeable.
- Facts:
- The two debtors formed several property management firms before bankruptcy. In 2010 (the wheels of justice grind slowly), the debtors filed separate chapter 11 cases. The cases were later administratively consolidated, and a trustee was appointed. The trustee filed a chapter 11 plan that called for the sale of the debtors' non-exempt assets and the assets of their businesses. Before the bankruptcy cases were filed, the appellee (Spokane Rock, LLC) obtained a state-court judgment against the debtors for fraud and misrepresentation. Spokane Rock then filed an adversary proceeding to have the Spokane Rock's claims deemed nondischargeable under section 523(a)(3) because the bankruptcies were not disclosed to Spokane Rock and Spokane Rock's judgment claim was not disclosed in the debtors' bankruptcies. This adversary proceeding was dismissed as untimely. Spokane Rock filed a second adversary proceeding under section 1141(d)(3). The bankruptcy court granted Spokane Rock summary judgment, denying the debtors of a discharge of the judgment debt to Spokane Rock.
- Judge(s):
- Marsha S. Berzon and Andrew D. Hurwitz, Circuit Judges, and Raymond J. Dearie, District Judge (EDNY), by designation