In re: Jessica Arlene Nelson, WW-15-1416-JuTaKu

Background

Jessica Nelson filed Chapter 7 on March 9, 2011; she listed two pending personal-injury (auto accident) claims and exempted part of their value. Darryl Parker was her prepetition personal-injury attorney on contingency.
Parker sent a letter asserting an attorney’s lien to an insurer on June 15, 2011 (postpetition, pre-discharge). Nelson received a discharge on July 18, 2011; the trustee closed the case and claims were abandoned.
Nelson’s counsel later tried to settle the accident claims but settlement proceeds were held because insurers would not pay until Parker’s asserted liens were resolved. Nelson moved for contempt and to void Parker’s liens.
The bankruptcy court initially entered a default contempt order (March 2013) voiding the liens; Nelson later obtained attorney’s fees. The BAP vacated that contempt judgment for insufficient findings under Zilog and remanded for findings.
On remand, after an evidentiary hearing, the bankruptcy court found Parker had knowledge of the discharge by March 8, 2013, found he willfully violated the discharge injunction (Zilog two-part test), voided the liens as stay violations, and awarded $17,887.50 in fees.
The BAP affirmed the lien-voiding portion (as violating § 362) but reversed the contempt/sanctions ruling because Nelson failed to prove by clear and convincing evidence that Parker knew the discharge applied to his claims and intended acts violating the injunction.

Issues

Issue	Plaintiff's Argument (Nelson)	Defendant's Argument (Parker)	Held
1. Did Parker have knowledge that the discharge injunction existed and applied to his claim?	Nelson: Parker received notice (mailing matrix, letters, motion) and knew of the discharge by March 8, 2013; thus he knew it applied to his prepetition fees.	Parker: He learned of the discharge but did not know or believe it applied to his mixed pre/postpetition lien claims.	Held: Reversed as to contempt — BAP concluded Nelson failed to prove by clear and convincing evidence that Parker knew the discharge applied to his claims.
2. Did Parker willfully violate the discharge injunction (Zilog two-part test)?	Nelson: Parker continued to assert liens and threatened insurer action, impeding settlement; his continued assertion after notice shows intent to violate injunction.	Parker: He took no affirmative steps to enforce liens after learning of discharge; some fees may have been postpetition; lien was void as stay violation, so no further action was required.	Held: Reversed — BAP found insufficient clear and convincing evidence of willful violation because no proof Parker knowingly acted to collect discharged prepetition debt after he had notice.
3. Were the attorney’s fees awarded to Nelson for post-notice enforcement and related work proper?	Nelson: Fees incurred to enforce the discharge and secure settlement funds after March 8, 2013, are recoverable and reasonable.	Parker: Challenges award scope, hourly rates, and argues some fees relate to prior appeal where Nelson was not prevailing party under Schwartz–Tallard.	Held: Remand reversal on contempt made sanctions analysis unnecessary; however, the BAP affirmed the portion of the order voiding liens and reversed as to contempt-based sanctions.

Key Cases Cited

Zilog, Inc. v. Corning (In re Zilog, Inc.), 450 F.3d 996 (9th Cir. 2006) (two-part test for contempt for violating a bankruptcy discharge: knowledge and intent).
Schwab v. Reilly, 560 U.S. 770 (2010) (treatment of partially exempted assets as property of the estate for purposes of stay/discharge analysis).
Schwartz v. United States (In re Schwartz), 954 F.2d 569 (9th Cir. 1992) (actions that violate the automatic stay are void).
Dyer v. Brown (In re Dyer), 322 F.3d 1178 (9th Cir. 2003) (standard of review for contempt and underlying factual findings).
McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949) (contempt may be imposed where parties knowingly take calculated steps risking violation of a decree).