In re Bahary, 528 B.R. 763

Background

Debtor Michael & Steven Bahary Partnership (Bahary) confirmed a chapter 11 plan on Aug. 21, 2012 that provided for surrender of 834 Grand Avenue to Banco Popular (Banco) by deed in lieu; Banco later sold to 334 Grand Joint Venture (GJV).
Napleton Enterprises claimed a contractual right of first refusal (ROFR) arising from a 2004 sale agreement; Napleton recorded a memorandum of the ROFR in 2006 but was not listed or given notice in Bahary’s bankruptcy schedules.
In June 2014 Napleton sued in DuPage County against Windy City, Bahary, Banco, and GJV seeking declaratory relief, contract damages, specific performance, and constructive trust; Napleton obtained a default against Bahary on Sept. 29, 2014.
Bahary moved to reopen the bankruptcy case and sought a rule to show cause alleging the state suit violated the § 524 discharge injunction and the confirmed plan; the bankruptcy court enjoined the state action and issued a show-cause order.
The court held Napleton’s ROFR was inchoate and did not apply to the deed-in-lieu transfer to Banco, and after hearings declined to hold Napleton or its counsel in contempt due to lack of notice and uncertainty whether a dischargeable debt ever existed; the court nonetheless ordered Napleton to dismiss Bahary and Banco from the state suit with prejudice.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Napleton’s state-court suit violated § 524(a)(2) discharge injunction	Napleton asserted ROFR entitles it to relief/damages against Bahary and transferees; state suit is permissible	Bahary argued the suit sought to collect a discharged debt and thus violated the injunction	Court held no contempt/violation: ROFR was inchoate or Napleton lacked notice so claim was not clearly a discharged debt; declaratory relief ok, damages claim not treated as discharge violation here
Whether Napleton had a cognizable prepetition claim that was discharged	Napleton contended it had enforceable rights under the ROFR	Bahary contended ROFR never vested (no bona fide third‑party offer) so Napleton had no claim	Court previously found ROFR not triggered by deed‑in‑lieu; here that supports conclusion Napleton had no enforceable claim against debtor at confirmation
Whether the bankruptcy court could enjoin state proceedings (Anti‑Injunction Act)	Napleton argued the Anti‑Injunction Act bars federal injunction of state court	Bahary argued § 105 and bankruptcy jurisdiction allow injunctions to enforce plan/discharge	Court held injunctions were proper under bankruptcy exceptions (expressly authorized by Congress/necessary to aid jurisdiction) and § 105 authority justified orders including dismissal of Bahary and Banco from state suit
Whether Banco and GJV may intervene	Banco sought to join; GJV sought to intervene	Banco: transferee and creditor with plan interests; GJV: later purchaser not a bankruptcy creditor	Court allowed Banco to join (was a creditor/transferee covered by plan); denied GJV intervention (its dispute with Napleton is a state-law, third‑party matter outside bankruptcy core jurisdiction)

Key Cases Cited

Trade Well Int’l v. United Cent. Bank, 778 F.3d 620 (7th Cir.) (contempt requires clear decree and clear‑and‑convincing proof of knowing violation)
Cox v. Zale Del., Inc., 239 F.3d 910 (7th Cir.) (bankruptcy courts have core jurisdiction to interpret and enforce injunctions)
Hawxhurst v. Pettibone Corp., 40 F.3d 175 (7th Cir.) (declaratory suits against debtors are not necessarily attempts to collect barred claims)
Int’l Bus. Machs. v. Fernstrom Storage & Van Co., 938 F.2d 731 (7th Cir.) (permitting nominal inclusion of debtor in suits to reach insurance or other non‑debtor sources)
Matter of Wood, 825 F.2d 90 (5th Cir.) (distinction between "arising in" and "arising under" jurisdiction in bankruptcy)
Stern v. Marshall, 131 S. Ct. 2594 (U.S.) (limits on bankruptcy judges’ constitutional authority and distinction between core and noncore proceedings)