616 B.R. 126
Bankr. D.N.M.2020Background
- Robert Pacheco filed Chapter 7 and received a discharge on August 14, 2019; the case was closed.
- Prepetition, the state court in a foreclosure action entered summary judgment on Michael Alarid Jr.’s cross-claim against Pacheco after Pacheco failed to respond.
- Pacheco timely moved in state court to reconsider/vacate that summary judgment; the motion was fully briefed and remained pending at removal.
- Alarid filed a bankruptcy adversary (No. 19-1054) seeking to except the debt evidenced by the state-court judgment from discharge under § 523(a)(2)(A) and (a)(6).
- After discharge, Pacheco removed the state-court Cross-Claim to bankruptcy court (Adversary No. 19-1066); Alarid moved to remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was removal of the Cross-Claim proper and timely? | Removal was procedurally defective/untimely (initially argued) | Removal was timely under Fed. R. Bankr. P. 9027(a)(2)(B) (30 days after stay termination) | Removal was proper and timely (filed within 30 days after discharge terminated stay) |
| Was the motion to remand/abstain timely? | Equitable remand permissible; motion filed within reasonable time | Motion to abstain untimely under local rule (30 days after §341 meeting) | Motion to remand treated as timely for equitable remand purposes (filed ~50 days after removal) |
| Should the court remand the removed claim under 28 U.S.C. § 1452(b)? | Comity and state-court familiarity favor remand; State Court should decide its own reconsideration motion | Federal forum necessary to avoid duplicative litigation and to protect bankruptcy-exclusive jurisdiction over dischargeability | Court ordered remand but only to allow State Court to rule on its pending motion to reconsider; weighed comity, duplication risk, and bankruptcy interests |
| May the bankruptcy court modify the discharge injunction to permit state-court action on the motion to reconsider? | Discharge injunction is statutory but equitable modification is appropriate to respect comity and avoid duplication | Some authority (Ninth Cir. BAP) says discharge injunction cannot be modified | Court held it has authority under § 105(a) and equity to narrowly modify the discharge injunction solely to allow the State Court to rule on the pending motion to reconsider; further litigation remains subject to bankruptcy control depending on that ruling |
Key Cases Cited
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (describes "old soil" equity principles for enforcing and shaping injunctions under § 524 and § 105)
- Brown v. Felsen, 442 U.S. 127 (1979) (limits of claim preclusion for non-dischargeability determinations)
- Hendrix, 986 F.2d 195 (7th Cir. 1993) (bankruptcy courts may modify discharge injunction under equity principles)
- In re Eastburg, 447 B.R. 624 (10th Cir. BAP 2011) (bankruptcy court authority to modify discharge injunction; "traffic cop" role)
- In re Munoz, 287 B.R. 546 (9th Cir. BAP 2002) (contrasting view that discharge injunction is statutory and not subject to judicial modification)
- Merrill Lynch Bus. Fin. Servs., Inc. v. Nudell, 363 F.3d 1072 (10th Cir. 2004) (Rooker–Feldman limits on lower federal courts reviewing state-court judgments)
- Grogan v. Garner, 498 U.S. 279 (1991) (explains fresh-start policy underlying discharge and burden of proof in nondischargeability actions)