649 B.R. 571
Bankr. E.D. Wash.2023Background
- Debtor Christopher Blanco signed prepetition employment contracts with Apple Valley Counseling that required reimbursement for training ($627.50) and made him financially responsible for damaged company equipment.
- Blanco filed Chapter 7 on June 28, 2022 and listed Apple Valley in the creditor matrix; Apple Valley received actual notice.
- Blanco’s employment ended in August 2022; Apple Valley invoiced $746.63 and assigned the claim to Action Collectors, which sent a collection notice on October 6, 2022.
- The bankruptcy court entered a discharge on October 13, 2022 and mailed notice to Apple Valley and Action Collectors.
- Action Collectors then sued Blanco in state court; Blanco moved to reopen the bankruptcy case and sought sanctions for violation of the discharge injunction.
- The bankruptcy court held that the obligations stemmed from prepetition contracts and, because Ninth Circuit precedent foreclosed Action Collectors’ contrary accrual theory, found a discharge violation and imposed sanctions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether obligations that were triggered postpetition by events are discharged | Debtor: obligations arise from prepetition contracts and thus were prepetition claims subject to the Chapter 7 discharge | Action Collectors: debts did not "accrue" until postpetition triggering events, so they are postpetition and not discharged | Court: obligations are prepetition claims (contingent/unmatured) under Ninth Circuit precedent and thus discharged; no fair ground of doubt |
| Whether contempt sanctions/remedies are appropriate and what they should be | Debtor: seek contempt and compensatory relief (dismissal of state suit, attorneys' fees, costs, damages) | Action Collectors: defended collection and legal theory; argued debts were postpetition (and conduct therefore lawful) | Court: held Action Collectors in civil contempt; ordered dismissal of state-court action within 14 days, awarded $2,790 (attorneys' fees and costs) and a $100 coercive fine; emotional-distress damages denied |
Key Cases Cited
- Christian Life Ctr. Litig. Def. Comm. v. Silva, 821 F.2d 1370 (9th Cir. 1987) (prepetition services/contracts can give rise to contingent claims treated as prepetition claims)
- SNTL Corp. v. Centre Ins. Co., 571 F.3d 826 (9th Cir. 2009) (rights to payment under prepetition agreements may be contingent yet still constitute prepetition claims)
- Goudelock v. Sixty-01 Ass'n of Apartment Owners, 895 F.3d 633 (9th Cir. 2018) (postpetition assessments rooted in prepetition obligations are part of the prepetition debt subject to discharge)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (civil contempt for discharge violations requires lack of an objectively reasonable basis — i.e., no "fair ground of doubt")
- Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th Cir. 2002) (bankruptcy courts may award compensatory sanctions including attorneys' fees to remedy discharge violations)