Zito v. Douglass Enterprises, LLC (In re Zito)

Case Type:
Case Status:
AZ-18-1289-BFL, 2019 WL 3959627 (9th Circuit, Aug 21,2019) Published
Creditor was not entitled to attorney's fees before prevailing in the state court litigation.
Procedural context:
Debtors' company filed a chapter 11 bankruptcy case, which was later converted to chapter 7. Debtors filed their individual chapter 11 bankruptcy case later. They did not list creditor or the personal guarantee on their bankruptcy schedules. After debtors received a discharge, creditor filed suit against debtors in state court for breach of the personal guarantee. Debtors reopened their individual chapter 11 case and sought a determination from the bankruptcy court that the personal guarantee had been discharged. Because the bankruptcy court found that the debtors had failed to establish that creditor had notice or actual knowledge of the case in time to file a timely proof of claim, the debt was not discharged under § 523(a)(3)(A). Creditor then moved for over $200,000 of attorney's fees and costs incurred. The bankruptcy court entered a judgment in favor of creditor and against the debtors.
Debtors owned and managed a real estate development company. To help fund a venture, debtors' company obtained a $200,000 loan from creditor. In addition, debtors executed a personal guarantee for the amounts owed to creditor.
Brand, Faris, Lafferty

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