- Case Type:
- Case Status:
- Reversed and Remanded
- NC-15-1406-BSKu (9th Circuit, Jun 27,2017) Not Published
- Bankruptcy court erred by finding creditor in contempt for willfully violating debtor's discharge injunction without making any finding as to whether creditor knew the discharge injunction "applied" to her cause of action in her complaint.
- Procedural context:
- Appeal from the bankruptcy court for the Northern District of California; reviewed de novo (as to whether the bankruptcy court applied the correct legal standard), for clear error (as to the court's finding of a willful violation), and for an abuse of discretion (as to the court's decision of whether sanctions should be imposed).
- Creditor and debtor entered into an agreement whereby creditor agreed to provide debtor with a line of credit to finance debtor's business. After the agreement was signed, debtor formed an LLC for his business. Debtor was the sole member of the LLC and alleged that the LLC never assumed the obligations of the agreement. After debtor failed to make payments under the agreement, creditor sued debtor in state court. Debtor subsequently filed for chapter 7 bankruptcy, staying the state court action, and sought to discharge creditor's claims. Creditor did not object to the discharge but did object to some of debtor's claimed exemptions, arguing that the exempt property was owned by the LLC. After debtor's discharge, the state court determined that the LLC did own some of the exempt property, and debtor turned this property over to creditor, who had a security interest in the property. Debtor cancelled the LLC. After debtor had received his discharge, creditor sought leave to file an amended complaint in the state court action. The amended complaint alleged twelve causes of action, eleven of which were against the LLC, and one of which was against both the debtor and the LLC for actions creditor claimed occurred postpetition. The state court granted creditor leave to file the amended complaint. Debtor then filed a motion to enforce the discharge injunction and award sanctions. Creditor opposed debtor's motion, arguing (1) that debtor was liable for the LLC's debts as its successor; (2) that one of her causes of action sought damages for postpetition actions or in rem relief and therefore did not violate the discharge injunction; and (3) that the bankruptcy court could not find her in contempt for violating the discharge injunction because she did not "knowingly" violate it. After holding a hearing on debtor's motion, the bankruptcy court issued a decision and order finding creditor in contempt for willfully violating the discharge injunction. Creditor appealed.
- Brand, Spraker, Kurtz
3119 in the system
4 Being Processed