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Song v. Lee (In re Lee)

In re Lee, BAP No. NC-14-1423-DKiTa (9th Cir. B.A.P. June 29, 2015).
The bankruptcy court properly imposed contempt sanctions on creditors for violating the discharge injunction. Not-for-publication memorandum.
Procedural context:
Debtors received a chapter 7 discharge. The creditors did not bring a dischargeability action. Nearly two years later, the creditors’ lawyer filed a state-court action against debtors on a prepetition claim. The state court ruled for debtors. Debtors then moved to reopen their bankruptcy case to seek sanctions against the creditors for violating the discharge injunction. The bankruptcy court ruled that the creditors had violated the discharge injunction by bringing the state-court action, and the bankruptcy court awarded debtors judgment against the creditors for attorney fees incurred by debtors. The creditors appealed, and the BAP affirmed.
Contempt is available with respect to willful discharge violations under section 105(a). A violation is willful if the alleged contemnor (1) knew that the discharge injunction applied and (2) intended the actions that violated the discharge. Here, the creditors knew that the discharge injunction existed before they commenced the state-court action. Good faith is viewed from an objective, not subjective, standpoint. Section 523(a)(3) does not provide a defense to the creditors because they had actual knowledge of the bankruptcy case in time to avail themselves of the protections of the Bankruptcy Code with respect to their alleged claims. The creditors intended their actions.
Randall L. Dunn, Ralph B. Kirscher, and Laura S. Taylor, Bankruptcy Judges.

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